Notice of Retraction: Discussion on the management of US treasury bonds

Abstract

The aim of China's foreign exchange control is to ensure mobility and security, so U.S treasury bonds, which are always regarded as the best current assets in the global financial market, become the focus of our country's foreign exchange control. As the largest holder of U.S treasury bonds, China is in a dilemma. If China began to underweight U.S. treasury bonds, the sell-off may lead to herd behavior, the policy with a target to reducing potential risks will lead to the sharp drop of the remaining U.S treasury bonds, therefore, China dare not underweight U.S treasury bonds. However, our country will be confronted with great foreign exchange risk if we invest a large number of foreign exchange reserves in U.S treasury bonds. As a result, it's necessary for our country to perfect foreign exchange market and to make some meaningful suggestions to prevent risk. The paper begins with the analysis of the formation and reasons of bearing large foreign exchange reserves, systematically elaborates why China bears U.S bonds, and then sums up the advantages and disadvantages of overweighting and underweighting U.S treasury bonds. Finally, the paper puts forward some constructive advice on management of U.S treasury bonds.