Washington may decide not to fulfil its promise to pay back the huge debt it owes to China, sparking fears of World War 3.
The former head of the Bank of England, Mervyn King, has suggested that the U.S. may be forced to annul its debt to Beijing under catastrophic circumstances that may well happen in the near future.
“Who knows what the future holds, but China and other countries do not want to be in a situation where all their international assets are in effect dependent on the US,” King said in an article for Gold Investor magazine.
“Of course the US would not want to renege on its debts, but if some awful conflagration occurred, then all China’s assets in the US might be annulled,” said the former BoE chief, adding that China and other countries should diversify their portfolios, making them less dependent “on the goodwill of other countries.”
China is the biggest holder of US debt with $1.245 trillion, according to US Treasury data. Over the past 12 months Beijing has cut its Treasury securities 1.3 percent from $1.261 trillion seen last year.
According to the most recent data from March, global central banks sold off $17 billion in US Treasuries. Since the beginning of the year the sell-off has reached $123 billion, which is the quickest pace since 1978.
Russia has steadily shed US assets since the 2008 financial crisis, with holdings dropping from more than $200 billion in 2008 to $86 billion as of March this year.
In May, billionaire George Soros cut investment in US stocks by a third and acquired a $264 million stake in the world’s biggest bullion producer, Barrick Gold.