The Exorbitant Privilege of US Treasuries and China's Choice in the New Era
After the decoupling of the US dollar from gold in 1971,US Treasuries replaced gold as the value benchmark of the international monetary system and acquired an exorbitant privilege.Subsequently,the total amount of US debt exhibited an exponential expansion trend,unbound by any substantial constraints.The so-called debt ceiling is merely a partisan game rather than a rigid fiscal constraint on the United States.As long as there are no fundamental changes in the international monetary system,the international credit of US Treasuries remains long-term stable,and its trend of infinite expansion is sustainable.Massive quantitative easing policies have failed to significantly shake this stability,and the notion of global investors offloading US Treasuries is more illusion than fact.The exorbitant privilege of US Treasuries grants the federal government the"freedom to borrow,"shielding the financial sector from deserved penalties during global financial crises and securing excessive returns in the global capital cycle.In the era of"twin surpluses"in capital and current accounts,China maintained a low exchange rate for the Renminbi to support its export manufacturing sector along the Southeast coast.As a result,China has accumulated huge foreign exchange reserves,mainly US Treasuries.This practice is unnecessary,yielding low returns and posing significant security risks.
US Treasuriesdebt ceilingde-dollarizationforeign exchange reservestransformation of the international monetary system
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