Egypt Daily News – China’s nuclear option with the USA worth 761 billion dollars, will it use it? China holds what can be described as an “economic nuclear option,” with U.S. Treasury bonds worth $761 billion in its hands, giving it the theoretical ability to create a severe disruption in U.S. financial markets if it decides to liquidate these assets.
Although the likelihood of such a step is considered low at the moment, some observers believe that simply having this leverage gives China strategic pressure power against Washington.
Economic analyst Tom Longo said that China’s large holdings in U.S. bonds are not surprising but rather a natural result of the significant trade surplus between China and the U.S. He added, “China recycles the dollars from its trade by purchasing U.S. bonds to reduce risks associated with currency exchange rates and to maintain its economic stability.”
Longo believes the possibility of “triggering” this financial bomb is very slim, “because a sudden sale would lead to the appreciation of the yuan, which would weaken China’s export competitiveness, something Beijing is trying to avoid at all costs.”
Instead, Longo points out that China is gradually moving away from the dollar through calculated steps, including offering yuan-denominated bonds to its trade partners in Southeast Asia, such as Malaysia and Thailand, which strengthens the influence of its local currency in international transactions.
However, the surprise came at the end of his remarks when he stated that “the real threat to financial stability does not come from Beijing, but from Europe.” Longo explained, “I fear that Brussels may use the Ukraine crisis as an excuse to reshape its financial system, with the potential for major defaults or paving the way for the launch of the digital euro.”
