US$ Reserve as a weapon!

This topic has been on my mind for a long time. From the recent stock market correction, we can see how interconnected the world economies are. Developed world depends on developing world for cheap labour and manufactured products while developing world need foreign investment and technology to furthur improve their own economy. Import and export of oil, gas, electricity, raw materials, manufactured goods, etc around the world essentially weaved an intricate web that connects every single nation together.

As we all know China now has over 1 Trillion Dollars of US$ reserve, mostly in the form of US government bonds. Here is a scenario (All hypothetical)

Taiwan declears formal independence. After all talks failed, PLA uses military power to take back Taiwan. US, in this case, did come to the aid of Taiwan. With the Help of CBGs and AF assets.

I would assume US knows enough not to start a land war in Asia. US has more than enough assets to hold the current invasion force at Bay. Let's assume they are selectively enough: They do not strike any civilian target They don't even strike any military base. They only takes out SAMs, and any planes or ships that ventured into Taiwan Straits or shows hostile intent (I know the chaces of this is remote, but let's assume it happened for the sake of discussion)

What can PRC do now? What options do they have? Nuclear weapons are definately out of questions. Currently PLA assets can do some damage to some CBGs, but let's face it, there is no way they can win over the entire US Navy. Now PRC is stuck, they can't proceed forward, and they can't back down either....

What will happen if the Chinese government decides to dumped all of it $1 Trillion USD reserve onto the world market at once and stop exporting to the US??

Taiwan declears formal independence. After all talks failed, PLA uses military power to take back Taiwan. US, in this case, did come to the aid of Taiwan. With the Help of CBGs and AF assets.

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One small detail. If the ROC delares it indpendence the US cannot help them. The only way they can get any help from the US is if the PRC invades the ROC. This is by a treaty signed in 1979.



It would be un-wise for the PRC to dump those US bonds because they would loose billions of USD. Why? Because of the proposed situation those bonds would have to be sold wholesale because of the full scale war jitters created worldwide by your seceniaro.

The US had a mutual defense treaty with Taiwan but it was abandoned shortly after the Shanghai communique. The Taiwan relations act however has often been sited as a means to sell weapons to Taiwan so that it may protect it from war. The US stated it would reduce then end its weapons sales to Taiwan over a period of time, but it has continued to do so. Right now, the prevention of sales are coming from Taiwan's legislative Yuan.

"The act authorizes quasi-diplomatic relations with the ROC government by establishing the American Institute in Taiwan and upholds all international obligations previously made between the ROC and U.S. prior to 1979 (with the exeception of the Mutual Defence Treaty between the United States of America and the Republic of China, which was quietly allowed to expire in 1980)".

If you read the Tiawan Relations act the agreement permits Tiawan to defend itself only. And of course as you stated the US still provides these "defensive" weapons to the ROC. No where in the treaty does it state that the US must come to the aid of the ROC if it declares it's indpendence. In fact the treaty recognizes "One China" with Beijing as the capitol.

Macbeth said:

The US stated it would reduce then end its weapons sales to Taiwan over a period of time, but it has continued to do so.

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I know there was a proposal, but was it formally agreed? Besides it required China to stop adding ballistic missiles its inventory - it has continued to do so anyway. So even if the agreement was signed, both sides are ignoring it.

That was not an opinion. That was a statement. It doesnt bother me greatly that the US continues to sell weapons to Taiwan. Although China will do her best to reduce those level of sales. The legislative Yuan is very capable of preventing additional military expenditures. But all in all, whether the US sells weapons to Taiwan, although not desireable, is not a major issue for me.

Macbeth said:

That was not an opinion. That was a statement.

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What I mean is, did the US actually formally agree to (e.g. sign) that statement? Because if it didn't then it's meaningless. Plus, as I pointed out, one part of it was that China stop the missile build-up. It hasn't done that, so how can it complain about the US still selling weapons to Taiwan?

The legislative Yuan is very capable of preventing additional military expenditures.

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The legislative yuan is actually set to authorise the P-3C Orion purchase and PAC-2 upgrades very soon (maybe this week) as part of the delayed annual budget. It also passed the Kidd purchase some years ago and has said it will fund the F-16 purchase if the US promises it will actually sell them. The main parties even hope the US might sell them a few Arleigh Burkes in the coming years.

That's a fair bit of "additional" military expenditure.

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Forget about the beginning of my scenario. Let's just say US forces are keeping PLA stranded!

Dumping US treasurey of course will casue China will loose billions of dollars, but if China has not other effective way to hurting the US, this might be the only way.

What would happend to US and World economy is Chinese government decides to dump its foreign reserve? I know gold will go through the roof for sure.

Hi jwangyue

As we all know China now has over 1 Trillion Dollars of US$ reserve, mostly in the form of US government bonds. Here is a scenario (All hypothetical)

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Chinese policy is to diversify its holdings of Foreign currency and reduce its proportion of US$.

Further, China is planning to use part of its reserve to pay for Infrastructure developments in the Interior provinces. In addition it is also pushing through a number of legislative measures to enable Government and Corporations to directly Invest ever higher quantities of their Foreign Currency holdings abroad.

What I think we can infer is that rather than hoard their reserve as some sort of M.A.D. doomsday weapon that the PRC is going to use it as "Nuclear Energy" in order to further vitalise its country and economy.

Im not very passionate on the issue of weapons sales so dont try to drag this out into an argument. What the US sells and what Taiwan buys is of little concern to me personally.


As for the legislative Yuan, they are not very cooperative.





But all in all...it doesnt really matter to me.