How about the following idea?
China tells the U.S., "We'll keep lending you more money, but you have to denominate the bonds in euros, yen, Swiss francs, etc.?"
I have no idea how plausible or workable such an idea would be, but apparently some Japanese economists are pretty serious about it:
... "Yen-denominated US Treasuries would reduce currency risks for Japanese and Chinese buyers of US Treasuries," said Fukui [Masaki, senior market economist in Tokyo at Mizuho Corporate Bank Ltd, a unit of Japan's second-largest financial group by market value]. "If concerns over US Treasuries continue to grow, no one will want to buy them. Yen-denominated US Treasuries would make it easy for foreign investors to buy them." <...> The idea of issuing foreign currency-denominated US Treasures is not new. The Jimmy Carter administration, buffeted by the two oil crises of the 1970s, sold "Carter bonds", denominated in German marks and Swiss francs, in 1978 to attract foreign investors into Treasuries. "The US will be forced to issue foreign currency-denominated US Treasures in its hour of need," said Mizuno [Kazuo, chief economist in Tokyo at Mitsubishi UFJ Securities Co, a unit of Japan's largest publicly traded lender by assets]. "The US cannot finance its deficit by itself. The US financial system cannot survive without foreign investors. We will see 'Obama Bonds' in the future." <...> China on November 9 announced its sweeping economic stimulus package valued at about 4 trillion yuan ($586 billion), to be spent over the next two years. Market players are speculating China, to secure financial resources, would reduce its holding of US Treasury securities rather than increase them. Japan economists call for 'Obama bonds' | Asia Times - Kosuke Takahashi (2008 November 19)
The idea of issuing foreign currency-denominated US Treasures is not new. The Jimmy Carter administration, buffeted by the two oil crises of the 1970s, sold "Carter bonds", denominated in German marks and Swiss francs, in 1978 to attract foreign investors into Treasuries.
"The US will be forced to issue foreign currency-denominated US Treasures in its hour of need," said Mizuno [Kazuo, chief economist in Tokyo at Mitsubishi UFJ Securities Co, a unit of Japan's largest publicly traded lender by assets]. "The US cannot finance its deficit by itself. The US financial system cannot survive without foreign investors. We will see 'Obama Bonds' in the future." <...>
China on November 9 announced its sweeping economic stimulus package valued at about 4 trillion yuan ($586 billion), to be spent over the next two years. Market players are speculating China, to secure financial resources, would reduce its holding of US Treasury securities rather than increase them.
Japan economists call for 'Obama bonds' | Asia Times - Kosuke Takahashi (2008 November 19)
Could Beijing, teaming up with Tokyo, "use its considerable financial leverage to set conditions such as" insisting on foreign-currency denominated U.S. Treasuries? Truth unfolds in time through a communal process.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
Ten years ago we could have imposed such an agreement and the world would likely be a much better place, along with the US having a much more favorable national account balance. I would present my proposal as a means for China to get more value out of its US T-Bill reserves than they would have if burned to keep the ministers warm during the winter, (i.e. trade them for something of value and, in the process, help to stand back up your former largest market.) In the process they would be creating valuable social capital. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
