Janet Yellen was probably yelling at China

WHEN US Federal Reserve Board chairman, Janet Yellen, set three conditions to restore a stable economic relations between the US and China, she thought she would be able to clinch a deal. From an objective point of view, the proposals were demands from which China could not back down. Others say, the proposals have all the shades of arrogant unilateralism.

First, Yellen demanded that China buy back the $850 billion US treasury bonds (TBs) it sold to curb the festering inflation in their economy.

Yes, the US is obligated to buy those TBs it sold to China if the latter feels the prices for the bonds were declining. China, as purchaser, can redeem those bonds upon their maturity or sell them according to their market value.

One must bear in mind that US TBs are guaranteed by the state, and are redeemable upon surrender by the owner.

US TBs are considered the most valuable assets a holder can present to the US federal reserve bank because they are guaranteed by the US government.

The decision by China to cut off around 830 billion worth of US TBs can rightfully be speculated as a trend on the declining influence of the US dollar as an international reserve currency. Additionally, for the fact that the relations between the US and China have lately turned shaky and unstable intensified by the US antiChina rant caused by the rise of China as an economic power, US has imposed restrictive sanctions against that country.

Remember

Particularly, the US has imposed tariffs on China imports to taper the unprecedented trade deficit it incurred reaching to a total of 800 billion.

The previous administration attempted to curb this by imposing tariff but American consumers complained because the tariff caused US imports to increase in prices.

Failing to abate this trade deficit, US decided to ban its selected imports from China which naturally would invite retaliatory trade sanction from the other countries.

The US soon realized that the problem stemmed from the unusual high value of the US dollar resulting in the perennial loss of exports to the US.

This was consequent to President Nixon’s policy of detaching the US economy from its GDP and instead economically based its strength on its current industrial output.

Through the years, US industrial output waned as many countries increased their exports on manufactured good decreasing the share of the US industrial output.

Japan, noting the decline in the value of the US economy, began to dispose its TBs after it discovered the extravagant sale of the TBs is being used to abate inflation that allowed them to resort to quantitative easing through the printing of US money to allow it to circulate and lighten credit to suppliers.

Following the footsteps made by Japan that disposed of around 300 billion yen in US TBs, China did the same.

This unprecedented withdrawal in US TBs was triggered by rumor that a new international organization known as BRICS (Brazil, Russia, India, China and South Africa) is about to come out with a reserve currency in its forthcoming meeting in August in South Africa.

The BRICS called for a new global currency that can challenge the dominant role of the US dollar. It also pushed for a greater voice – and more votes – for developing countries in key international economic organizations like the