The United States is forcing the RMB to appreciate. Once it appreciates, the US Treasury bonds held by China will be greatly reduced! But why did China continue to increase its holdings of US Treasury bonds in the near future? What is the relationship between the appreciation of RMB and the shrinking of US Treasury bonds?

You buy U.S. Treasury bonds in dollars. Suppose you lend the US 100 USD, the US government will repay you 100 USD plus some interest on the repayment date. You lend dollars to the United States, and the United States gives you dollars back. What do you care about RMB appreciation? Whether your RMB appreciates or depreciates, the United States will give you 100 plus loan interest.

Most of your dollars are exported to the United States by domestic enterprises and earned from the United States. After earning back the US dollars, the enterprise will deposit the US dollars in the Bank of China, and the US dollars can no longer circulate in China. Because enterprises spend money in China, they have to convert these dollars into RMB. After the appreciation of RMB, only these enterprises can exchange less RMB for domestic consumption. Similarly, this means that the circulation of RMB currency in China banks will be reduced accordingly (to some extent, inflation will be reduced), because the more RMB depreciates, the more RMB these dollars will be converted into, which means that more bills will be printed and put into China.

But these dollars are still in the bank of China and will not appreciate. What will the Bank of China eat? If domestic enterprises want to import, they can exchange RMB into US dollars (appreciation means more exchange). In short, there are always a lot of dollars in China's banks, and these dollars have become dead money. In order to preserve their value, they can only invest or lend money, that is, lend it to the United States, and then recover it with interest after it expires.