At the beginning, the reason why Su Nuan suggested that China hold Country A’s bonds at this time was mainly based on several considerations.
As one of the world's largest, most liquid and safest bond markets, country A's government bonds are an important allocation target for China's foreign exchange reserves.
Secondly, it can also maintain exchange rate stability. China's exchange rate policy is based on a basket of currencies and adjusted according to market supply and demand and economic fundamentals. Due to the dollar's dominant position in the international monetary system, China needs to hold a certain amount of dollar assets to maintain the relative stability of the RMB exchange rate.
Secondly, consider investment returns. While the yield on Country A's government bonds isn't high, they still hold a certain appeal compared to bonds from other countries. Especially in a global environment of low interest rates and low inflation, Country A's bonds can offer a certain positive real return. Furthermore, Country A's government bonds offer strong liquidity and risk resistance, providing a safe haven in times of crisis.
Finally, there are political considerations. China's holdings of U.S. debt are also a political signal, demonstrating its willingness to maintain economic cooperation and financial stability with Country A, rather than adopting a hostile or confrontational stance.
China is still in the development stage and is not strong enough to shake the economically powerful country A. It is more beneficial for China to send friendly signals at this time.
In addition, China's holding of Country A's government bonds can have other advantages at the political level.
First, it can increase China's voice. As one of Country A's largest creditors, China can influence Country A's fiscal and monetary policies to a certain extent. If Country A faces a debt crisis, China can speak out through diplomatic channels or the media, urging it to resolve the issue quickly and safeguard China's interests.
Second, trade balance. Huaxia's holdings of Country A's bonds can help balance the trade relationship between the two countries and mitigate the risk of trade friction and a trade war. If Huaxia does not purchase Country A's bonds and instead uses the remaining foreign exchange to purchase goods and services from other countries or regions, this could lead to a further widening of the trade surplus between the two countries, sparking further dissatisfaction and retaliation from Country A.
Third, it can support development. Hua Xia's holdings of Country A's government bonds can provide a stable source of funds and income for its economic development. The proceeds from Country A's bonds can be used to support Hua Xia's future infrastructure development, social security, technological innovation, and other areas, promoting its economic transformation and upgrading.
It was also based on these three points that, after Su Nuan’s explanation, the leader agreed to purchase a certain amount of Country A’s bonds.
As for how to deal with the uncertainty of Country A’s debt problem?
Su Nuan has also considered this and will work on these aspects in the future to try to reduce the risk of investing in Country A’s government bonds.
First, increase diversified investments. Huaxia can appropriately reduce its reliance on U.S. debt and increase its investment in bonds, stocks, gold, and other assets from other countries and regions to improve the diversity and security of its foreign exchange reserves. At the same time, Huaxia can also accelerate the internationalization of the Huaxia currency, expand its use in international trade and finance, and reduce its reliance on the U.S. dollar.
Second, strengthen monitoring. China should closely monitor the developments of Country A's debt issues, promptly assess their impact on China's interests, develop contingency plans, and mitigate risks. At the same time, China will strengthen communication and coordination with Country A, express China's position and demands, and safeguard China's legitimate rights and interests.
Third, strengthen and deepen cooperation. China should strengthen cooperation with other countries and regions in the financial sector to jointly maintain global financial stability and development. For example, China can participate in the establishment of multilateral financial institutions such as the Asian Infrastructure Investment Bank and the New Development Bank of the BRICS countries, providing more public products and services for global economic growth.
It was also because Su Nuan made a comprehensive plan. After the leader put forward Su Nuan's proposal in the conference room, all the participants voted in favor.
With the immediate action of China, which currently holds nearly 50 billion US dollars in Country A's bonds, China has become one of the largest holders of Country A's bonds.
This is also why President George W. Bush of Country A felt the financial terror balance from China.
Su Nuan, the mastermind behind the scenes, received a bombshell piece of news from Ji Mo at this moment.
On September 7, 1991, Henry Paulson, Treasury Secretary of Country A, officially announced the government's takeover of Fannie Mae and Freddie Mac, injecting $100 billion into each and replacing their CEOs. The two companies transferred 79.9% of their equity to the government. Why 79.9%? The reason for the decision was that if a shareholder's equity exceeded 80%, the capital injection would be taxed. Even while rescuing Fannie Mae and Freddie Mac, the Treasury Department hadn't forgotten to avoid taxes.
Meanwhile, Lehman Brothers had negotiated with more than a dozen banks, ultimately leaving only Bank of Country A and Barclays Bank of Country Y. However, due diligence by the two banks uncovered a flaw in Lehman Brothers' balance sheet, which fundamentally distinguished Lehman's acquisition from Bear Stearns.
Bear Stearns' assets, though devalued, were still valuable, and the Federal Reserve could guarantee them.
Because of Lehman's capital loopholes, the Federal Reserve was not allowed by law to guarantee it, which led Bank of America to acquire Merrill Lynch, the third-ranked bank.
Barclays, which was interested in acquiring the company, insisted on a guarantee from the Federal Reserve, and the two sides reached a stalemate.
In the end, the Finance Minister of Country Y called Henry Paulson and said: Britain will not import cancer from Country A.
Paulson was completely desperate. He had seen the collapse of the financial system. At 1:45 a.m. on September 15, Lehman Brothers declared bankruptcy.
The collapse of Lehman Brothers triggered the most serious crisis: the credit crisis. Investors began to flee the capital market, fleeing any investment institution similar to Lehman Brothers, and fleeing any company.
Panic investors flocked to the bonds of Country A. The day after Lehman Brothers collapsed, hundreds of billions of dollars of newly issued Country A bonds with an interest rate of less than 0.1% were scrambled for.
Country A's government bonds are in high demand, making China, one of the largest bond holders, the winner.
Because hundreds of billions of dollars were poured into the market, the value of government bonds skyrocketed. In a short period of time, China made back all its invested capital by appropriately reducing its holdings by a small amount.
The value of the treasury bonds he held rose to 100 billion US dollars. The leader who was far away in Beijing couldn't stop smiling after hearing the news.
As for Su Nuan, the financial genius, he values her more and more.
Meanwhile, in Country A, the credit crisis had already spread to the real economy. Commercial paper from the giant General Electric was unsold in the market, and small and medium-sized enterprises were struggling.
Companies cannot raise funds and have to lay off employees. Those who have been laid off lose their income and have to live frugally. After being unable to repay their mortgages, they lose their homes and become more cautious with their money, further reducing consumption and investment, and the economy falls into a vicious cycle.
Continue read on readnovelmtl.com
