Several years ago, an article in the Economist stated, “. . . foreign central banks seem to have reduced their purchases of American Treasuries: official holdings of these rose by only $2 billion in the first seven months of 2005, against $295 billion in (the whole of) 2004 and $175 billion in 2003. If this trend continues, other currencies could one day challenge the dollar’s dominance . . .”Has this trend continued? What impact might such a reduction in purchases of U.S. treasury securities have on the cost of short- and long-term financing? If the central bank of another country increases interest rates, how does that affect purchase of American Treasuries?Does the country you selected purchase American Treasuries? To what extent?
Yes the trend has continued. A gradual decline in foreign holdings of U.S. assets wouldhave a significant negative impact on the U.S. economy in the short run. It would cause asharp depreciation…
