![]() ![]() To pay back China, the Fed simply reverses the accounting entries, marking down the number in its securities account and marking up the number in its reserve account. ![]() It’s still just sitting on its US dollars, but now China is holding yellow dollars instead of green dollars. “Borrowing from China” involves nothing more than an accounting adjustment, whereby the Federal Reserve subtracts numbers from China’s reserve account (checking) and adds numbers to its securities account (savings). It does this by purchasing US Treasuries. Uncle Sam doesn’t pay interest on the dollars China keeps in its checking account at the Fed, so China usually prefers to move them into what is effectively a savings account at the Fed. Like any other holder of US dollars, China has the option to sit on those dollars or use them to buy something else. Americans paid for those goods with US dollars, and those payments were credited to China’s bank account at the Federal Reserve. ![]() “The difference gave China a $420 billion trade surplus (the US carried the opposite, a $420 billion trade deficit with China). ![]()
0 Comments
Leave a Reply. |