According to sources United States is refusing to release China's gold that is kept in American vaults which has heightened tensions between the two countries. China has responded to this development by liquidating its American Treasury bond holdings a move that may cause economic instability in the United States.
As part of its foreign exchange reserves management policy China has long kept some of its gold assets in American vaults. But current geopolitical unrest and economic difficulties have made China demand the return of its gold. Relationship tensions have increased as a result of the United States failure to abide by this proposal China sees this as a betrayal of confidence and an effort to use economic pressure.
China has started selling off American Treasury bonds in reaction to the United States' unwillingness to return its gold. This action is a component of Chinese larger plan to diversify its foreign exchange reserves and lessen its dependency on the US dollar. In addition to retaliating against the United States China is indicating its intention to investigate alternate reserve currencies and assets like gold by dumping U.S Treasuries
The U.S economy may be significantly impacted by Chinese sale of US Treasuries. Interest rates would rise as a result of a massive sell-off increasing the cost of borrowing for the US government and perhaps leading to financial instability. Higher prices for businesses and consumers could result from this which would impact inflation and economic growth. A planned decline in China's Treasury holdings according to some analysts could not have disastrous consequences because the bonds might be absorbed by other investors preserving market stability.
Deeper strains in the America-China relationship are reflected in the dispute over Chinese gold and its intention to dump US Treasuries. The ongoing trade war and strategic competition in fields like technology and security have caused both countries to reevaluate their political and economic relationships, as part of a larger plan to increase its economic clout internationally China is working to internationalize the yuan and lessen its reliance on the US dollar.
China wants to diversify its reserves and reduce the dangers connected with the US currency which is why it is placing more emphasis on gold. Gold is seen as a safe-haven investment especially in difficult economic times. With recent acquisitions China's central bank has been gradually growing its gold reserves in an effort to strengthen its strategic assets and lessen its susceptibility to American economic policy.