An adviser to China’s central bank warned US Republican lawmakers yesterday that they are “playing with fire” by discussing even a brief technical default on US debt to force domestic spending cuts, Reuters reported. A technical default would mean the US government would delay paying interest to holders of US Treasury bonds for a few days. The US Treasury has been borrowing to meet its obligations but says it will run out of borrowing room by August 2. Li Daokui said such a default could undermine confidence in the US dollar. “I think there is a risk that the US debt default may happen,” he said. “The result will be very serious.” China is the largest holder of US debt, holding more than US$1 trillion worth of Treasury bonds at the end of March. The markets do not appear to be expecting a default. US Treasury bond prices held firm in Europe on Wednesday, supported in part by concerns about the effect of the ongoing Greek debt crisis’s effect on the euro. One analyst said that markets could become more nervous if some accord on US spending is not reached in the next five to six weeks.
Categories