The downgrade of sovereignty credit rating of the United States causes new concerns on US treasury bonds. According to the report issued recently by Treasury Ministry of United States， China as the largest oversea holding country of US treasury bonds continues to buy US treasury bonds， with an increase of 5.7 billion US dollars in June， marking the third month in line. Till now， China has US treasury bonds up to a new record of 1，165.5 billion US dollars， which amounts to 26% of the oversea holding US treasury bonds， based on market estimation， followed by Japan (20%)， UK (8%)， Brazil (5%) and Russia (3%). However， in sharp contrast to China， other countries are underselling us treasury bonds， particularly Russia. Data shows that since Oc- tober 2010， Russia has been selling US treasury bonds for eight months in line， up to 38% of their holdings. Now Russia only holds 111 billion US dollars of US treasury bond. Why the countries take totally different attitudes towards to US treasury bonds? The reporter interviewed the experts from China and Russia for more details.Zhu Chao， associate professor at Finance School of Capital University of Economics and Business， expressed his point of view that the key for China and Russia adopted different ways is the asymmetry in the holdings. Only over 200 billion US dollars in the 530 billion foreign treasury bonds held by Russia are of US treasury bonds， so it won’t have a big influence even if Russia sells these treasury bonds out. Meanwhile， China holds a foreign exchange reserve of 3.2 trillion US dollars， and any trend of underselling may cause market fluctuation， and then harm China itself. Although the sovereignty credit rating of the United States was downgraded， Fan Mingtai， research director at Institute of Quantitative and Technical Economics， Chinese Academy of Social Science， believes that now dollar is still a relative safe choice against Euro and Yen. But he also suggested that China should carry out foreign exchange reserve diversification strategy in long term.As to Russia’s continuous reducing US treasury bonds， the experts didn’t feel it surprising. Russian Prime Minister Vladimir Putin had criticized the United States before， by saying: “The United States has a huge treasury bond shows that US government didn’t pay as it go， but shifts part of its burden to global economy， and which shows US economy is to a certain extent dependent on world economy and the monopoly of US dollar.” While selling out US treasury bonds， Russia is buying gold. According to World Gold Council (WGC)’s statistics， in the first half of 2011， Central Banks in various countries and regions are increasing the gold reserves， especially Russia， Mexico and South Korea. The data shows that Russia has been continuing to increase their gold reserves in the first six months of this year， the total increase reached 48 tons， and the proportion of gold reserve in foreign exchange reserves rose to around 8%.Entering 2011， although Gold price in international market hiked， and it dropped sharply after May， but it recovered since July. Stimulated by US treasury bond crisis， gold price soared by nearly 15% in just more than a month. According to the official data from the People’s Bank of China， by the end of June the gold reserve was 1，054 tons， which remained the same since April 2009. And the gold reserve only takes 1.6% in China’s foreign exchange reserve， far lower than the global average. The State Administration of Foreign Exchange issued a statement on July 20th， saying that gold， other precious metals and bulk commodities are not good investment choices for Chinese foreign exchange reserve， since their prices may fluctuate in a larger range， the market capacity is relatively limited， and costs for trading and storage are higher.As to China， gold is not the substitute investment channel with ample capacity， since China has a so huge foreign exchange reserve. There are not many choices for investment. According to WGC， last year China had an increase of foreign exchange reserve of 469.6 billion US dollars， three times of total global gold demand (156.3 billion US dollars). US dollar is still the key currency in the world. On the other hand， US Treasury bond is one of the best market in the world， with the deepest pool and highest fluidity， so it’s a good choice for China to invest in US treasury bonds， to preserve and increase the value.China and Russia also have different opinions on the interest rate problems caused by treasury bonds. Russia thinks the United States has the ability to maintain currency stability. Yakov Millkin， director of Financial Market Research Bureau， Institute of World Economy and International Relations under the Russian Academy of Sciences， said that the United States printed too much money will have a negative impact on the real economy， but it will not turn into a financial crisis for certain， as since 1970s the world economy has been on the rise， and the volatility is within normal range. Millkin believes， the economic system in USA is very flexible and huge， and this US bond crisis does no great harm to the United States. “We have reasons to believe that US dollar will have a long-term and predictive stability， or even appreciation，” said he.Wei Liang， assistant researcher at World Economic Research Center of China Institute of Contemporary International Relations， stressed that the fact is that the exchange rate for US dollar is dropping， and US dollar is able to recover， but “not now”. Wei Liang said: “Now there is a crisis emerging in the United States， meaning the bonds are close to 100% of GDP. The appreciation of US dollar will cause higher bond burdens， and depreciation is un- doubtedly a way to ease the burden.”In fact， the United States had used this method as early in 1985， when the U.S. budgetary deficit and trade deficit soared， and Japan was the largest creditor nation of USA at that time. The United States wanted to improve the competiveness of exported commodities through depreciation， and signed Plaza Accord with Britain， France， Japan， Germany， to jointly intervene in the foreign exchange market， leading to the crash of US dollar and one time appreciation of Japanese Yen. Experts think the Plaza Accord was the top cause for more than ten years’ downturn in Japan.Zhu Chao said the depreciation of US dollar would be inevitable in a certain period， and there are three reasons for that. First， now the interest rate of US dollar fluctuates between the range of 0 to 0.25%， and zero interest rate will maintain till 2013， which will reduce the possibility for appreciation. Second， emerging countries including China have a strong economic growth trend， and there is great potential for currency appreciation， so US dollar will depreciate in comparison. Third， the general election in the United States is not clear， and the exchange rate of US dollar will become an important weapon for votes. In the conditions that no additional taxes will be applied to the wealthy， credit consumption pattern can not be changed， and trade deficit maintains high， depreciation of US dollar would be the only way that the United States rely on to ease bonds burden.
