So how do we pay off those Treasury securities held by China?
Treasury securities are held in accounts at the US Federal Reserve.
Let’s assume $1 billion of Treasury securities held by China comes due tomorrow.
Here’s what would happen tomorrow:
- The US Federal Reserve would lower the amount of Treasury securities still held by China by $1 billion.
- The US Federal Reserve would increase the number of dollars in China’s bank account at the US Federal Reserve by $1 billion plus interest.
The US Federal Reserve keeps the books and increases and decreases these balances just by changing the numbers on its books.
That’s how it is and has always been.
Paying off the Federal debt is nothing more than debiting a securities account and crediting a member bank account at the Fed.