Order Code RS22331
Updated November 2328, 2005
CRS Report for Congress
Received through the CRS Web
Foreign Holdings of Federal Debt
Justin Murray
Information Research Specialist
Knowledge Services Group
Marc Labonte
Specialist in Macroeconomics
Government and Finance Division
Summary
This report presents current data on estimated ownership of United States Treasury
securities and major holders of federal debt by country. Federal debt represents the
accumulated balance of borrowing by the federal government. To finance federal
borrowing, United States Treasury securities are sold to investors. Treasury securities
may be purchased directly from the Treasury on the secondary market in the United
States or overseas by the individual private investors, financial institutions, and foreign,
state, or local governments. Foreign investment in federal debt has grown in recent
years, prompting questions on the location of the foreign holders and how much debt
they hold.
Federal debt represents, in large measure, the accumulated balance of federal
borrowing of the United States government. The portion of gross federal debt held by the
public consists primarily of investment in U.S. Treasury securities.1 Investors in the
United States and abroad include official institutions such as the United States Federal
Reserve, financial institutions such as private banks, and private individual investors.
Table 1 below provides data available as of November 2005 on estimated ownership of
U.S. Treasury securities by type of investment and the percentage of that investment
attributable to foreign investors.
As the table notes, during the past four years, foreign holdings of the public debt
have increased more than the total privately held debt has increased. Foreign holdings of
debt increased by $856.5 billion to nearly $1.9 trillion from December 2000 to December
2004. During the same period, total privately held debt increased by $786 billion to $3.7
billion.1
1
Debttrillion.
1
Figures on debt held by the public figures are available on the Bureau of Public Debt website, “The Debt
Debt to the Penny and Who Holds It,” at [http://www.publicdebt.treas.gov/opd/opdpdodt.htm].
Congressional Research Service ˜ The Library of Congress
CRS-2
In December 2000, total foreign investment in U.S. federal debt was just over $1
trillion (35.9%) of the total $2.89 trillion in privately held debt. By December 2004, total
foreign investment in U.S. federal debt grew by 15.7 percentage points to approximately
$1.9 trillion (51.6%) of all debt held by private investors.2
Table 1. Estimated Ownership of U.S. Treasury Securities
(in billions of dollars)
End of
Month
Total Public Debt
Held by All
Private Investors
(Foreign and
Domestic)
Total Public Debt Held
by Foreign Investorsmonth
Total public debt
held by all private
investors
Total public debt held
by foreign investors
Percentage of public
debt held by foreign
investors
Dec. 2004
$3,667.1
$1,890.7
51.6%
Dec. 2003
$3,377.9
$1,537.6
45.5%
Dec. 2002
$3,018.5
$1,200.8
39.8%
Dec. 2001
$2,819.5
$1,051.2
37.3%
Dec. 2000
$2,880.4
$1,034.2
35.9%
Percentage of Public
Debt Held by Foreign
Investors
Source: Table OFS-2: Estimated Ownership of U.S. Treasury Securities from the September 2005
Treasury Bulletin. See link for “Ownership of Federal Securities” tables at [http://www.fms.treas.gov/
bulletin/b35ofs.docindex.html]. Percentage approximations calculated
by CRS by CRS.
Notes: Although gross federal debt is the broadest measure of the debt, it may not be the most important
one. The debt measure that is relevant in an economic sense is debt held by the public. This is the measure
of debt that has actually been sold in credit markets and has influenced interest rates and private investment
decisions. This table reflects that portion of public debt held by all private investors in federal securities and
the portion of that debt held by foreign investors. See CRS Report RL31590, The Federal Government
Debt: Its Size and Economic Significance, by Brian Cashell.
Data on major foreign holders (investors) of federal debt by country are provided in
Table 2 below. According to the table, the three top-estimated foreign holders of federal
debt by country, ranked in descending order as of September 2005, are Japan ($687.3
billion), China ($252.2 billion), and the United Kingdom ($182.4 billion). Based on these
estimates, Japan’s portion of the investment in U.S. federal debt constitutes approximately
33.3% of all foreign investment in U.S. federal debt; China’s, approximately 12.2%; and
the United Kingdom’s, approximately 8.8%.
2
Data are excerpted from Table OFS-2 in the September 2004 Treasury Bulletin. Table OFS-2
presents the estimated ownership of U.S. Treasury securities. Information is primarily obtained
from the Federal Reserve Board of Governors Flow of Funds data, Table L209. State, local, and
foreign holdings include special issues of nonmarketable securities to municipal entities and
foreign official accounts. They also include municipal, foreign official, and private holdings of
marketable Treasury securities.
Although gross federal debt is the broadest measure of the debt, it may not be the most important
one. The debt measure that is relevant in an economic sense is debt held by the public. This is
the measure of debt that has actually been sold in credit markets and has influenced interest rates
and private investment decisions. At the end of FY2004 (September 30, 2004), the debt held by
the public was estimated at just over $4.3 trillion. The remaining $3.0 trillion was held by various
federal agencies. See CRS Report RL31590, The Federal Government Debt: Its Size and
Economic Significance, by Brian Cashell.
CRS-3
Table 2. The Top Ten Foreign Holders of Federal Debt, by Country
In Billions of Dollarsbillions of dollars
(as of September 2005)
Percentage of
All Foreign
Investment in
Federal Debt
In Billions of Dollarsall foreign
investment in
federal debt
In billions of dollars
(as of September 2000)
Percentage of
All Foreign
Investment in
Federal Debtall foreign
investment in
federal debt
Japan
$687.3
33.3%
Japan
$317.3
30.5%
Mainland
China
$252.2
12.2%
Mainland
China
$62.1
6.0%
United
Kingdom
$182.4
8.8%
United
Kingdom
$64.3
6.2%
Caribbean
Banking
Centers
$102.9
5.0%
Germany
$50.9
4.9%
Taiwan
$71.8
3.5%
OPEC
$46.8
4.5%
Germany
$63.5
3.1%
Taiwan
$38.1
3.7%
Korea
$61.7
3.0%
Hong Kong
$37.4
3.6%
OPEC
$54.6
2.6%
Caribbean
Banking
Centers
$33.9
3.3%
Canada
$48.1
2.3%
Korea
$28.1
2.7%
Hong Kong
$47.8
2.3%
BelgiumLuxembourg
$23.3
2.2%
76.2%
Total Top 10
Countries of
Foreign
Investors in
Federal Debt
$702.2
67.6%
100%
Total All
Foreign
Investment in
Federal Debt
$1,038.8
100%
Total Top 10
Countries of
Foreign
Investors in
Federal Debt
Total All
Foreign
Investment in
Federal Debt
$1572.3
$2,062.9
Source: The Treasury Department International Capital System provides data on estimated foreign holders
of federal debt by month on theirits website at [http://www.treas.gov/tic/mfh.txt].
Note: Percentages may vary slightly due to rounding. Historical data are available at [http://www.treas.gov/
tic/mfhhis01.txt].
Foreign investment as estimated by the Treasury Department can be divided into
official (governmental investment) and private (individual investment) sources. Figure
1 below provides data on the current breakdown of estimated foreign holdings in U.S.
federal debt. As the figure shows, just over 59.5% of foreign holdings in U.S. federal
debt are held by governmental sources.
CRS-4
Figure 1. Breakdown of Official Versus Private
Foreign Holdings in U.S. Federal Debt
Source: Treasury Department International Capital System, at [http://www.treas.gov/tic/mfh.txt].
Notes: The estimated combined total of all foreign holdings is $2,065.5 billion. Data as of
November 16, 2005. The breakdown between estimated official and private holdings is not
publically available on a country-by-country basis. Percentages approximated by CRS.
Foreign Investment in U.S. Federal Debt:
Why Is It an Issue of Concern?
Foreign ownership of federal debt has become a growing concern among some
Members of Congress because of the nation’s large and rising trade deficit. During the
past three decades, U.S. national saving has not been adequate to finance its capital
investment needs and borrowing from abroad has covered the gap. In order for foreigners
to invest in the U.S. economy on net, the United States must import more than it exports
or run a trade deficit. When the government runs a budget deficit, as it has done since
2002, it reduces the national saving rate. This implies that domestic investment must fall,
unless private saving rises or borrowing from abroad increases.3
As seen in Table 1, as the national debt has increased, foreign ownership of U.S.
Treasuries has followed closely, suggesting that the budget deficit has been financed, in
part, through borrowing abroad. In 2004, foreigners held more than 50% of the publicly
held debt for the first time. Although this percentage has no particular economic
significance, it has symbolic significance for some.
Since 2002, some observers have been concerned that the nature of foreign purchases
of U.S. Treasuries has changed. Beginning in that year, a large and growing fraction of
3
RS21409, The Budget Deficit and Trade Deficit: What is Their Relationship? by Marc Labonte
and Gail Makinen.
CRS-5
the trade deficit was financed through official purchases of U.S. assets, such as purchases
by foreign central banks. Although no direct data on official purchases of Treasuries by
3
CRS Report RS21409, The Budget Deficit and Trade Deficit: What is Their Relationship?, by
Marc Labonte and Gail Makinen.
CRS-5
country exist, one can infer that the Treasuries may have been purchased by certain Asian
countries because they were the only countries that had large increases in their foreign
reserves during that period. In descending order, Japan, China, Taiwan, Korea, and India
had the largest increases in total foreign reserves (including non-U.S. assets) from 2002
to 2004. Although the effect on the U.S. economy of official purchases of Treasuries is
the same as private purchases, the motivations behind the purchases are different.
Whereas private purchases are typically motivated by the profit incentive, official
purchases may be motivated by a country’s desire to keep its exchange rate constant or
mitigate its rise against the dollar.4 Many observers are concerned that the large fraction
of national debt held by foreigners has the potential to be harmful to the U.S. economy.
Specifically, they fear that if foreigners suddenly decided to stop holding U.S. Treasury
securities, the dollar would plummet in value and interest rates would rise.
When foreigners purchase U.S. Treasuries, or any other U.S. asset, the interest rate
is reduced, unlike when borrowing is financed domestically out of national saving. Thus,
when overall interest rates fall as a result of net capital inflows, more interest-sensitive
spending is undertaken. Interest-sensitive spending includes capital investment (e.g.,
production plants and equipment), residential investment (e.g., new homes), and durable
consumption goods (e.g., automobiles and appliances). On the other hand, foreign
borrowing is linked to trade deficits by reducing exports and import-competing
production. The trade deficit occurs because foreigners must first purchase U.S. dollars
before purchasing U.S. assets. When the demand for dollars increases, the dollar
appreciates, making U.S. exports and import-competing goods relatively more expensive.
Thus, foreign borrowing shifts production out of the trade sector and into the interestsensitive sector.5
Selected CRS Reports
CRS Report RS21409., The Budget Deficit and Trade Deficit: What is Their Relationship?
by Marc Labonte and Gail Makinen.
CRS Report RS21951., Changing Causes of the U.S. Trade Deficit, by Marc Labonte and
Gail Makinen.
CRS Report RL31590., Federal Government Debt: Its Size and Economic Significance,
by Brian W. Cashell.
CRS Report RL30520., The National Debt: Who Bears Its Burden?, by Marc Labonte and
Gail E. Makinen.
CRS Report RS20645., Recent Changes in Federal Debt and Its Major Components, by
Philip D. Winters.
CRS Report RL31032. ,U.S. Trade Deficit: Cause, Consequences, and Cures, by Craig
Elwell.
4
See CRS Report RS21951, Changing Causes of the U.S. Trade Deficit, by Marc Labonte and
Gail Makinen.
5
CRS Report RL31032, U.S. Trade Deficit: Causes, Consequences, and Cures, by Craig Elwell.