China reduces its holdings of US Treasury by $518 billion, leading to Moody’s downgrade of US credit outlook

China reduces its holdings of US Treasury by $518 billion, leading to Moody’s downgrade of US credit outlook

China’s Divestment of United States Debt and Its Broader Implications

Over the previous ten years, China has consistently declined its holdings of United States Treasury securities, resulting in a 14-year low, based on the latest data from the United States Treasury Department.

According to an post by Jenry Kanapi for The Daily Hodl, China’s accumulation of United States Treasuries peaked in May 2013, reaching an record-breaking peak of $1.297 trillion. Ever since, China has consistently divested its Treasury holdings, bringing it down to $778.1 Billion as of September 2023, representing a whole lot of decrease of over $518.9 Billion from the 2013 peak.

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The Geopolitical and Economic Implications

The reduction in Treasury holdings by China reflects broader geopolitical and economic shifts. It might be seen as a strategic repositioning by China in the worldwide financial landscape.

Moody’s Revised United States Government Credit Rating

According to a report by CNBC, Moody’s Investor Services revised the United States government’s credit rating outlook from “stable” to “negative,” primarily due to increasing political polarization in Congress. Regardless of retaining its highest AAA credit rating from Moody’s, Fitch Rating and Standard & Poor’s have previously downgraded their ratings.

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The Probable Impact

As CNBC notes that, a change in the actual credit rating could limit the United States government’s borrowing capacity or increase borrowing costs. This might impact the government’s capacity to pay workers and provide essential services like Social Security. It might likewise affect the stock market, interest rates, and consumers’ access to loans.

Hot Take: The Future of US-China Financial Relations

The strategic divestment of United States debt by China underscores the evolving dynamics of worldwide financial power. This situation outlines the interconnectedness of worldwide economies and the  capacity ramifications of geopolitical and economic decisions on the world stage.

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