International politics has been heating up lately, including the ongoing tension between China and the United States that started with a trade war.
Under the leadership of former President Donald Trump, the United States aimed to take back the global supply chain to America, as 28% of the world's manufacturing output is in China.
The conflict escalated further after China took over Hong Kong as a single country, despite resistance from Hong Kong citizens who refused to join China.
Recently, there has been a tense military escalation in Chinese waters due to China's ambition to take over Taiwan. Taiwan is strategically important in various aspects, from its human resources to its established industries.
However, behind the scenes, China still has a romantic relationship with the United States. China holds a large amount of debt issued by the United States and continues to acquire these assets.
Currency Reserve Is Flooding
Then why did China do this? Don't they want to bring down their enemy? It's not as simple as that.
China is a country whose economy relies on exports. This export activity makes China acquire a lot of US Dollars.
By accumulating US Dollars, you would be at a loss if you let them sit idle. You have to make your money work for you.
Buying bonds is one way to make your money work for you. China can earn annual interest from the bonds they hold.
And if they need their capital back, they can simply sell their bonds. This is a very wise move by China, despite the conflict between the two countries.
Keeping Competitive Advantage
China is a country whose economy relies on exports. More than a quarter of the world's manufacturing output is produced in the Bamboo Curtain country.
One strategy to win in this sector is how competitive your product is compared to products from other countries. One of them is competitiveness in terms of price.
It will be difficult to maintain low prices by cutting profit margins. Therefore, a wise way to make prices competitive is to keep your currency cheap.
China obtains its production raw materials from within the country itself. So it doesn't matter if their currency remains cheap.
To do so, China exchanges Yuan and Renminbi with US Dollars. Then they spend their Dollars on US Treasury bonds.
Low Risk
Investing in bonds is a low-risk allocation of funds. Rarely does anyone go bankrupt from holding bonds.
Especially if the bonds held are US Treasury bonds. Moreover, the bonds issued by the Federal Government.
Everyone definitely disagrees if the risk of the United States going bankrupt is higher than Nigeria. Because everyone believes in the United States.
In addition, US Treasury bonds are highly marketable. This makes the risk of holding this asset even lower. Because if you need liquidity at any time, you just need to sell it.
Especially now that the interest on US Treasury bonds is over 6%. This makes investing in US Treasury bonds very promising.
In G-D We Trust
The fact that China still likes to buy US Treasury bonds is evidence that the US dollar has not lost its strength, despite many countries starting to reduce trade using the US dollar.
It's no wonder that if you have a business and issue bonds in US dollars, you have the potential to get better funding than using other currencies. This is because many people are willing to buy bonds in dollars if the investor needs liquidity. It's different if you use other currencies where only local investors are willing to buy the securities if the investor needs liquidity.
However, holding US dollars is a wise decision, especially if the holder is a country. This is because many countries have debts in US dollars, so holding US dollars can make it easier to pay off debt.
Bagaimanapun memegang US Dollar merupakan keputusan yang bijaksana. Apalagi yang memegangnya adalah Negara. Karena banyak negara yang memiliki utang dengan mata uang US Dollar sehingga memegang US Dollar dapat mempermudah untuk membayar utang.
In God We Trust, that's what's written on US dollar bills. Despite being hit by various disasters such as the 2007 financial crisis, the strength of the US dollar still dominates.
