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> increases the numbers of dollars in circulation (since bonds are redeemed in dollars) But following supply and demand principles, increasing the number of do
by w23j 7y ago
> increases the numbers of dollars in circulation (since bonds are redeemed in dollars)
But following supply and demand principles, increasing the number of dollars in circulation should lead to inflation/devaluing of the dollar, right?
- astazangasta 7y agoYou are right, my initial assumptions are wrong - China isn't buying bonds from the US Treasury (as I would), they are buying them from a forex bond market, where we might consider the supply of dollars to be like any other commodity. This means when they buy up bonds they are decreasing supply, therefore driving up the price, and when they sell off bonds, they are increasing the supply of dollars, causing the price to fall.