Order Code RL32462
Foreign Investment in U.S. Securities
Updated July 14, 2008
James K. Jackson
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division

Foreign Investment in U.S. Securities
Summary
Foreign capital inflows are playing an important role in the U.S. economy by
bridging the gap between domestic supplies of and demand for capital. Foreign
investors now hold more than 50% of the publicly held and traded U.S. Treasury
securities. The large foreign accumulation of U.S. securities has spurred some
observers to argue that this large foreign presence in U.S. financial markets increases
the risk of a financial crisis, whether as a result of the uncoordinated actions of
market participants or by a coordinated withdrawal from U.S. financial markets by
foreign investors for economic or political reasons.
Congress likely would find itself embroiled in any such financial crisis through
its direct role in conducting fiscal policy and in its indirect role in the conduct of
monetary policy through its supervisory responsibility over the Federal Reserve.
Such a coordinated withdrawal seems highly unlikely, particularly since the vast
majority of the investors are private entities that presumably would find it difficult
to coordinate a withdrawal. It is uncertain, though, what types of events could
provoke a coordinated withdrawal from U.S. securities markets. Short of a financial
crisis, events that cause foreign investors to curtail or limit their purchases of U.S.
securities likely would complicate efforts to finance budget deficits in the current
environment without such foreign actions having an impact on U.S. interest rates,
domestic investment, and the long-term rate of growth. This report analyzes the
extent of foreign portfolio investment in the U.S. economy and assesses the economic
conditions that are attracting such investment and the impact such investments are
having on the economy.
Economists generally attribute this rise in foreign investment to comparatively
favorable returns on investments, a surplus of saving in other areas of the world, the
well-developed U.S. financial system, and the overall stability and rate of growth of
the U.S. economy. Capital inflows also allow the United States to finance its trade
deficit because foreigners are willing to lend to the United States in the form of
exchanging the sale of goods, represented by U.S. imports, for such U.S. assets as
U.S. businesses and real estate, stocks, bonds, and U.S. Treasury securities. Despite
improvements in capital mobility, foreign capital inflows do not fully replace or
compensate for a lack of domestic sources of capital. Economic analysis shows that
a nation’s rate of capital formation, or domestic investment, seems to have been
linked primarily to its domestic rate of saving.
To date, the world economy has benefitted from the stimulus provided by the
nation’s combination of fiscal and monetary policies and trade deficit. Over the long
run, however, concerns are growing that U.S. economic policies and the
accompanying large deficit in its international trade accounts could have a negative
impact on global economic developments, especially for developing countries.
This report relies on a comprehensive set of data on capital flows, represented
by purchases and sales of U.S. government securities and U.S. and foreign corporate
stocks, bonds, into and out of the United States, that is reported by the Treasury
Department on a monthly basis. This report will updated as events warrant.

Contents
Capital Flows in the Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Capital Flows and the Dollar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Purchases and Sales of U.S. Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Purchases and Sales of U.S. Securities by Foreign Investors . . . . . . . . . . . 13
Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Corporate Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Corporate Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Major Foreign Holdings of U.S. Long-Term Securities . . . . . . . . . . . 16
Economic Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
List of Figures
Figure 1. Foreign Official and Private Capital Inflows to the United States,
1996-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Figure 2. Foreign Ownership Share of Publicly Held Treasury Securities,
1996-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Figure 3. Foreign Official and Private Purchases of U.S. Treasury Securities,
1996-2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
List of Tables
Table 1. Capital Inflows to the United States, 1996-2007 . . . . . . . . . . . . . . . . . . 2
Table 2. Flow of Funds of the U.S. Economy, 1996-2007 . . . . . . . . . . . . . . . . . . 3
Table 3. Saving and Investment in Selected Countries and Areas; 1994-2001
and 2007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Table 4. Foreign Exchange Market Turnover . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Table 5. Transactions in Long-Term U.S. Securities, 2007 . . . . . . . . . . . . . . . . . 11
Table 6. Foreign Transactions in U.S. Securities, 2000-2007 . . . . . . . . . . . . . . 11
Table 7. Net Foreign Purchases of U.S. Securities by Foreigners . . . . . . . . . . . 13
Table 8. Net Foreign Purchases of Publicly Traded U.S. Treasury Securities . . 14
Table 9. Net Foreign Purchases of U.S. Corporate Stocks . . . . . . . . . . . . . . . . . 15
Table 10. Net Foreign Purchases of U.S. Corporate Bonds . . . . . . . . . . . . . . . . 16
Table 11. Major Foreign Holdings of Long-Term U.S. Treasury Securities,
or Cumulative Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Table 12. Market Value of Foreign Holdings of U.S. Long-Term Securities, by
Type of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Foreign Investment in U.S. Securities
Foreign capital inflows are playing an important role in the U.S. economy by
bridging the gap between domestic supplies of and demand for capital. International
capital flows and international capital markets also give the owners of capital the
ability to reduce their risk by diversifying their investments. Foreign investors are
now major investors in U.S. corporate stocks and bonds and hold more than 50% of
the publicly held and traded U.S. Treasury securities. These capital inflows help
keep U.S. interest rates below the level they would reach without them and allow the
Nation to spend beyond its current output, including financing its trade deficit. Some
observers, however, are concerned about the extent of these foreign holdings, because
they argue that this exposure increases the overall risks to the economy should
foreign investors decide to withdraw from the U.S. financial markets for political or
economic reasons.
Inflows of capital into the U.S. economy are not new. Such inflows, however,
grew sporadically over the last decade, as indicated in Table 1. In 1996, total foreign
capital inflows to the United States reached over $551 billion. As Figure 1 shows,
these capital inflows are comprised of official inflows, primarily foreign
governments’ purchases of U.S. Treasury securities, and private inflows comprised
of portfolio investment, which includes foreigners’ purchases of U.S. Treasury and
corporate securities, and financial liabilities, and direct investment in U.S. businesses
and real estate. By 2000, total foreign capital inflows totaled more than $1 trillion.
Such inflows were reduced in 2001 and 2002 as the growth rate of the U.S. economy
slowed, but grew to over $2.0 trillion in 2007 as the rate of economic growth
improved. Private capital inflows comprise more than three-fourths of the total
capital inflows, with foreign purchases of corporate securities, stocks and bonds
being the main components of these inflows. In 2007, official inflows are estimated
to account for 17% of total foreign capital inflows, down from23.7% in 2006.
Capital flows are highly liquid, can respond abruptly to changes in economic
and financial conditions, and exercise a primary influence on exchange rates and
through those on global flows of goods and services. Economists generally attribute
this rise in foreign investment to comparatively favorable returns on investments
relative to risk, a surplus of saving in other areas of the world, the well-developed
U.S. financial system, and the overall stability of the U.S. economy. These net
capital inflows (inflows net of outflows) bridge the gap in the United States between
the amount of credit demanded and the domestic supply of funds, likely keeping U.S.
interest rates below the level they would have reached without the foreign capital.
These capital inflows also allow the United States to spend beyond its means,
including financing its trade deficit, because foreigners are willing to lend to the
United States in the form of exchanging goods, represented by U.S. imports, for such
U.S. assets as stocks, bonds, and U.S. Treasury securities.


























































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































































CRS-2
Table 1. Capital Inflows to the United States, 1996-2007
(in billions of dollars)
Private assets
Official
Total
assets
Direct
Treasury Corporate
U.S.
Total
Other
investment securities
securities
currency
1996
$551.1
$126.7
$424.4
$86.5
$147.0
$103.3
$17.4
$70.2
1997
706.8
19.0
687.8
105.6
130.4
161.4
24.8
265.5
1998
423.6
-19.9
443.5
179.0
28.6
156.3
16.6
62.9
1999
740.2
43.5
696.7
289.4
-44.5
298.8
22.4
130.5
2000
1,046.9
42.8
1,004.1
321.3
-70.0
459.9
5.3
287.6
2001
782.9
28.1
754.8
167.0
-14.4
393.9
23.8
184.5
2002
768.2
114.0
654.3
72.4
100.4
285.5
21.5
174.4
2003
829.2
248.6
580.6
39.9
113.4
251.0
16.6
159.7
2004
1,440.1
394.7
1,045.4
106.8
107.0
369.8
14.8
477.0
2005
1,204.2
259.3
995.0
109.0
132.3
450.4
19.0
234.3
2006
1,859.6
440.3
1,419.3
180.6
-35.9
592.0
12.6
670.2
2007
1,863.7
412.7
1,451.0
204.4
166.3
391.9
10.9
677.3
Source: Bach, Christopher L., U.S. International Transactions in 2007, Survey of Current Business,
April, 2008. p.48.
Figure 1. Foreign Official and Private Capital Inflows to the United
States, 1996-2007
$2,100
$2,000
$1,900
$1,800
$1,700
rs
$1,600
$1,500
lla
$1,400
o
$1,300
$1,200
f d
$1,100
$1,000
s o
$900
n
$800
$700
$600
illio
$500
$400
B
$300
$200
$100
$0
-$100
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Official assets
Private assets
Source: Department of Commerce

CRS-3
Capital Flows in the Economy
Table 2 shows the net flow of funds in the U.S. economy. The flow of funds
accounts measure financial flows across sectors of the economy, tracking funds as
they move from those sectors that supply the sources of capital through
intermediaries to sectors that use the capital to acquire physical and financial assets.1
The net flows show the overall financial position by sector, whether that sector is a
net supplier or a net user of financial capital in the economy. Since the demand for
funds in the economy as a whole must equal the supply of funds, a deficit in one
sector must be offset by a surplus in another sector. Generally, the household sector,
or individuals, provides funds to the economy, because individuals save part of their
income, while the business sector uses those funds to invest in plant and equipment
that, in turn, serve as the building blocks for the production of additional goods and
services. The Government sector (the combination of federal, state, and local
governments) can be either a net supplier of funds or a net user depending on whether
the sector is running a surplus or a deficit, respectively. The interplay within the
economy between saving and investment, or the supply and uses of funds, tends to
affect domestic interest rates, which move to equate the demand and supply of funds.
Shifts in the interest rate also tend to attract capital from abroad, denoted by the rest
of the world (ROW) in Table 2.
Table 2. Flow of Funds of the U.S. Economy, 1996-2007
(in billions of dollars)
Government
State and
Year
Households
Businesses
Total
Local
Federal
ROW
1996
175.2
19.8
-196.8
-1.2
-195.6
137.9
1997
47.4
-18.3
-116.6
-47.5
-69.1
219.6
1998
128.0
-45.7
64.8
48.8
16.0
75.0
1999
-132.7
-62.6
115.3
9.9
105.4
231.7
2000
-371.0
-82.9
252.5
54.5
198.0
476.3
2001
-494.4
-82.9
233.4
35.4
198.0
485.4
2002
-343.4
8.7
-382.6
-95.6
-287.0
501.7
2003
-101.8
30.3
-546.3
-70.4
-475.9
535.4
2004
-230.6
136.8
-468.6
-32.9
-435.7
554.4
2005
-741.0
-26.1
-413.1
-16.1
-397.9
773.3
2006
-656.9
-170.5
-338.8
-50.3
-283.0
829.3
2007
-188.0
-45.4
-353.3
-90.7
-284.0
677.4
I 2007
6.4
-57.9
-486.5
-95.7
-387.8
728.1
1 Teplin, Albert M., the U.S. Flows of Funds Accounts and Their Uses, Federal Reserve
Bulletin
, July 2001. p. 431-441.

CRS-4
Government
State and
Year
Households
Businesses
Total
Local
Federal
ROW
II 2007
-1,199.6
10.8
-130.2
-64.3
-65.9
621.4
III 2007
618.5
-86.9
-435.9
-84.8
-351.1
441.9
IV 2007
-177.8
-47.6
-449.5
-118.2
-331.3
918.2
I 2008
219.2
-90.9
-636.8
-162.7
-474.1
592.1
Source: Board of Governors of the Federal Reserve System, Flow of Funds Accounts of the United
States, Flows and Outstandings First Quarter 2008
, June 5, 2008.
As Table 2 indicates, from 1996 through 1998, the household sector ran a net
surplus, or provided net savings to the economy. The business sector also provided
net surplus funds in 1996, or businesses earned more in profits than they invested.
The government sector, primarily the federal government, experienced net deficits,
which decreased until 1998, when the federal government and state and local
governments experienced financial surpluses. Capital inflows from the rest of the
world rose and fell during this period, depending on the combination of household
saving, business sector saving and investment, and the extent of the deficit or surplus
in the government sector.
Starting in 1999, the household sector began dissaving, as individuals spent
more than they earned. Part of this dissaving was offset by the government sector,
which experienced a surplus from 1998 to 2001. As a result of the large household
dissaving, however, the economy as a whole experienced a gap between domestic
saving and investment that was filled with large capital inflows. Those inflows were
particularly large in nominal terms from 2000 to 2006 as household dissaving
continued and government sector surpluses turned to historically large deficits in
nominal terms.
In 2007, capital inflows fell by about $150 billion from the amount recorded in
2006. This drop in capital inflows reflected a sharp drop in household dissaving, a
decrease in business sector dissaving and an increase in the deficits experienced by
state and local governments. In the first quarter of 2008, the flow of funds show a
large drop in capital inflows from the rest of the world, from $918 billion in the
fourth quarter of 2007 through the first quarter of 2008. In addition, households
turned from a dissaving of $178 billion in the fourth quarter of 2007 to a net saving
of $219 billion in the first quarter of 2008, reflecting the growing concern among
households over the state of the economy. The Federal Reserve has reported that in
the first quarter of 2008, households experienced a drop in their net worth of $1.7
trillion.2
Foreign capital inflows augment domestic U.S. sources of capital, which, in
turn, keep U.S. interest rates lower than they would be without the foreign capital.
2 Board of Governors of the Federal Reserve System, Flow of Funds Accounts of the United
States, Flows and Outstandings, First Quarter 2008
, June 5, 2008.

CRS-5
Indeed economists generally argue that it is this interplay between the demand for
and the supply of credit in the economy that drives the broad inflows and outflows
of capital. As U.S. demands for capital outstrip domestic sources of funds, domestic
interest rates rise relative to those abroad, which tends to draw capital away from
other countries to the United States.
The United States has also benefitted from a surplus of saving over investment
in many areas of the world that has provided a supply of funds and accommodated
the overall shortfall of saving in the country. This surplus of saving has been
available to the United States, because foreigners have remained willing to loan that
saving to the United States in the form of acquiring U.S. assets, which have
accommodated the growing current account deficits. Over the past decade, the
United States experienced a decline in its rate of saving and an increase in the rate
of domestic investment, as indicated in Table 3. The large increase in the Nation’s
current account deficit would not have been possible without the accommodating
inflows of foreign capital.
As Table 3 indicates, compared with the 1994-2001 period, U.S. saving in 2007
declined by 3.4% of gross domestic product (GDP), while investment decreased by
0.8% of GDP. This shift toward greater investment relative to saving was
accommodated by an increase worldwide in saving relative to investment. Among
other advanced economies and the newly industrialized economies in Asia, both
saving and investment declined in 2007 relative to the 1994-2001 period, but
investment declined more as a share of GDP than did saving, so saving increased as
a relative share of GDP. In the emerging developing economies, the developing
economies of Asia (which includes China), and the Middle East, saving as a share of
GDP increased faster, and in some cases much faster, than did investment, which also
increased in these areas.
Table 3. Saving and Investment in Selected Countries and
Areas; 1994-2001 and 2007
(Percentage of Gross Domestic Product)
Average,
Area/Country
2007
Change
1994-2001
World
Saving
22.1
23.7
1.6
Investment
22.4
23.3
0.9
United States
Saving
17.0
13.6
-3.4
Investment
19.6
18.8
-0.8
Other Advanced Economies
Saving
21.6
20.0
-1.6
Investment
21.8
21.1
-0.7
Eurozone
Saving
21.3
21.8
0.5
Investment
21.0
22.2
1.2
Japan
Saving
29.3
28.6
-0.7

CRS-6
Average,
Area/Country
2007
Change
1994-2001
Investment
26.9
23.8
-3.1
Newly Industrialized Asian Economies
Saving
33.0
32.0
-1.0
Investment
29.9
25.7
-4.2
Emerging Developing Economies
Saving
24.1
33.0
8.9
Investment
24.8
28.8
4.0
Developing Asia
Saving
32.7
44.7
12.0
Investment
32.4
37.9
5.5
Middle East
Saving
25.2
44.7
19.5
Investment
22.1
24.9
2.8
Source: World Economic Outlook, International Monetary Fund, April 2008. p. 268-271.
Capital inflows also allow the United States to finance its trade deficit, because
foreigners are willing to lend to the United States in the form of exchanging the sale
of goods, represented by U.S. imports, for such U.S. assets as businesses and real
estate (referred to as direct investment), and stocks, bonds, and U.S. Treasury
securities. Such inflows, however, put upward pressure on the dollar, which tends
to push up the price of U.S. exports relative to its imports and to reduce the overall
level of exports. Furthermore, foreign investment in the U.S. economy drains off
some of the income earned on the foreign-owned assets that otherwise would accrue
to the U.S. economy as foreign investors repatriate their earnings back home.
Some observers are particularly concerned about the long-term impact of the
U.S. position as a net international investment debtor on the pattern of U.S.
international income receipts and payments.3 In 2006, the United States received
$650 billion in income receipts on its investments abroad and paid out $614 billion
in income payments on foreign-owned assets in the United States for a net surplus
of $37 billion in income receipts, down from the $48 billion net surplus in income
receipts experienced in 2005. Considering the overall negative balance of the U.S.
net investment position, it is not surprising that the net surplus of income receipts is
falling. As the annual amount of foreign investment in the U.S. economy continues
to exceed the amount of U.S. investment abroad, however, it seems inevitable that
U.S. payments on foreign-owned assets will continue to rise relative to U.S. receipts.
A net outflow of income payments acts as a drag on the national economy as U.S.
national income is reduced by the net amount of funds that are channeled abroad to
foreign investors.
Foreign capital inflows, while important, do not fully replace or compensate for
a lack of domestic sources of capital. Capital mobility has increased sharply over the
last twenty years, but economic analysis shows that a nation’s rate of capital
3 CRS Report RL32964, The United States as a Net Debtor Nation: Overview of the
International Investment Position
, by James K. Jackson.

CRS-7
formation, or domestic investment, seems to be linked primarily to its domestic rate
of saving. This phenomenon was first presented in a paper published in 1980 by
Martin Feldstein and Charles Horioka.4 The Feldstein-Horioka paper maintained that
despite the dramatic growth in capital flows between nations, international capital
mobility remains somewhat limited so that a nation’s rate of domestic investment is
linked to its domestic rate of saving.5
Capital Flows and the Dollar
Another aspect of capital mobility and capital inflows is the impact such capital
flows have on the international exchange value of the dollar. Demand for U.S.
assets, such as financial securities, translates into demand for the dollar, since U.S.
securities are denominated in dollars. As demand for the dollar rises or falls
according to overall demand for dollar-denominated assets, the value of the dollar
changes. These exchange rate changes, in turn, have secondary effects on the prices
of U.S. and foreign goods, which tend to alter the U.S. trade balance. At times,
foreign governments have moved aggressively in international capital markets to
acquire the dollar directly or to acquire Treasury securities in order to strengthen the
value of the dollar against particular currencies.
Also, the dollar is heavily traded in financial markets around the globe and, at
times, plays the role of a global currency. Disruptions in this role have important
implications for the United States and for the smooth functioning of the international
financial system. This prominent role means that the exchange value of the dollar
often acts as a mechanism for transmitting economic and political news and events
across national borders. While such a role helps facilitate a broad range of
international economic and financial activities, it also means that the dollar’s
exchange value can vary greatly on a daily or weekly basis as it is buffeted by
international events.6 A triennial survey of the world’s leading central banks
conducted by the Bank for International Settlements in April 2007 indicates that the
daily trading of foreign currencies through traditional foreign exchange markets7
4 Feldstein, Martin, and Charles Horioka, Domestic Saving and International Capital Flows,
The Economic Journal, June, 1980, pp. 314-329; Feldstein, Martin, Aspects of Global
Economic Integration: Outlook for the Future
. NBER Working Paper 7899, September
2000, pp. 9-12.
5 Developments in capital markets have improved capital mobility since the Feldstein-
Horioka paper was published and have led some economists to question Feldstein and
Horioka’s conclusion concerning the lack of perfect capital mobility. (Ghosh, Atish R.,
International Capital Mobility Amongst the Major Industrialized Countries: Too Little or
Too Much?, The Economic Journal, January 1995, pp. 107-128.) Indeed, some authors
argue that short-term capital flows among the major developed economies are highly liquid,
perhaps too liquid, and seem to be driven as much by short-term economic events and
speculation as they are by longer term economic trends.
6 Samuelson, Robert J., Dangers in a Dollar on the Edge. The Washington Post, December
8, 2006. p. A39.
7 Traditional foreign exchange markets are organized exchanges which trade primarily in
foreign exchange futures and options contracts where the terms and condition of the
(continued...)

CRS-8
totals more than $3.2 trillion, up sharply from the $1.9 trillion reported in the
previous survey conducted in 2004, as indicated in Table 4. In addition to the
traditional foreign exchange market, the over-the-counter (OTC)8 foreign exchange
derivatives market reported that daily turnover of interest rate and non-traditional
foreign exchange derivatives contracts reached $2.1 trillion in April 2007. The
combined amount of $5.3 trillion for daily foreign exchange trading in the traditional
and OTC markets is more than three times the annual amount of U.S. exports of
goods and services. The data also indicate that 86.3% of the global foreign exchange
turnover is in U.S. dollars, slightly lower than the 88.7% share reported in a similar
survey conducted in 2004.9
Table 4. Foreign Exchange Market Turnover
Daily averages in April, in billions of U.S. dollars
1992
1995
1998
2001
2004
2007
Foreign Exchange Market Turnover
Instrument
Spot transactions
$394
494
568
386
621
1,005
Outright forwards
58
97
128
130
208
362
Foreign exchange swaps
324
546
734
656
944
1,714
Reporting gaps
43
53
61
28
107
129
Total “traditional” turnover
820
1,190
1,490
1,200
1,880
3,210
Over the Counter Derivatives Market Turnover
Foreign exchange instruments
97
87
140
291
Interest rate instruments
265
489
1,025
2,090
Reporting gaps
13
19
55
113
Total OTC turnover
375
575
1,220
2,090
Total market turnover
820
1,190
1,865
1,775
3,100
5,300
United States
Foreign exchange turnover
244
351
254
461
664
OTC derivatives turnover
90
135
355
607
Total 244
441
389
816
1,271
Source: Triennial Central Bank Survey: Foreign Exchange and Derivatives Market Activity
in 2007
. Bank for International Settlement, September 2007.
7 (...continued)
contracts are standardized.
8 The over-the-counter foreign exchange derivatives market is an informal market consisting
of dealers who custom-tailor agreements to meet the specific needs regarding maturity,
payments intervals or other terms that allow the contracts to meet specific requirements for
risk.
9 Triennial Central Bank Survey: Foreign Exchange and Derivatives Market Activity in
2007
. Bank for International Settlement, September 2007. pp. 1-2. A copy of the report
is available at:[http://www.bis.org/publ/rpfx07.pdf]

CRS-9
In the U.S. foreign exchange market, the value of the dollar is followed
closely by multinational firms, international banks, and investors who are attempting
to offset some of the inherent risks involved with foreign exchange trading. On a
daily basis, turnover in the U.S. foreign exchange market10 averages $664 billion;
similar transactions in the U.S. foreign exchange derivative markets11 averages $607
billion, nearly double the amount reported in a similar survey conducted in 2004.12
Foreigners also buy and sell U.S. corporate bonds and stocks and U.S. Treasury
securities. Foreigners now own about 53% of the total amount of outstanding U.S.
Treasury securities that are publicly held and traded, as indicated in Figure 2.13
Figure 2. Foreign Ownership Share of Publicly Held Treasury
Securities, 1996-2007
55
50
re
45
a
h

40
t S
35
ercen
30
P
25
20
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
Q1
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year/Quarter
Source: Federal Reserve
10 Defined as foreign exchange transactions in the spot and forward exchange markets and
foreign exchange swaps. A spot transaction is defined as a single transaction involving the
exchange of two currencies at a rate agreed upon on the date of the contract; a foreign
exchange swap is a multi-part transaction which involves the exchange of two currencies
on a specified date at a rate agreed upon at the time of the conclusion of the contract and
then a reverse exchange of the same two currencies at a date further in the future at a rate
generally different from the rate applied to the first transaction.
11 Defined as transactions in foreign reserve accounts, interest rate swaps, cross currency
interest rate swaps, and foreign exchange and interest rate options. A currency swap
commits two counterparties to exchange streams of interest payments in different currencies
for an agreed upon period of time and usually to exchange principal amounts in different
currencies as a pre-agreed exchange rate; a currency option conveys the right to buy or sell
a currency with another currency as a specified rate during a specified period.
12 The Foreign Exchange and Interest Rate Derivatives Markets: Turnover in the United
States April 2007
. The Federal Reserve Bank of New York, April, 2004. pp. 1-2. A copy
of the report is available at [http://www.newyorkfed.org/markets/triennial/fx_survey.pdf].
13 Treasury Bulletin, December 2007. Table OFS-2. p. 48.

CRS-10
Purchases and Sales of U.S. Securities
A comprehensive set of data on capital flows, represented by purchases and
sales of U.S. government securities and U.S. and foreign corporate stocks, bonds,
into and out of the United States is published by the Treasury Department on a
monthly basis.14 These data represent cross-border flows and positions between U.S.
residents and foreign residents and include monthly data on transactions in long-term
securities, monthly and quarterly data on long- and short-term securities reported by
banks and securities brokers, annual position data on holdings of long-term and
short-term securities, and comprehensive benchmark surveys. Cross-border
transactions consist of only those transactions that involve both a U.S. seller and a
foreign purchaser; they exclude transactions between strictly U.S. buyers and sellers
and foreign buyers and sellers. The data also capture only those transactions that
involve a defined panel of custodians (banks and other depository institutions,
securities brokers and dealers, end-investors, security issuers, and nonfinancial
institutions) above a certain threshold amount, specifically cross-border transactions
of at least $50 million per month. The custodial basis of the transactions means that
some attribution of data to specific countries may distort the holdings data, because
some foreign owners entrust the safekeeping of their securities to such financial
centers as Belgium, the Caribbean banking centers, Luxembourg, Switzerland, and
the United Kingdom, which would inflate the holdings of these custodians, rather
than be attributed to the actual foreign owner. The data in the following tables reflect
monthly transactions in long-term securities.15
As the data in Table 5 show, foreign investors buy and sell large amounts of
U.S. financial assets, although the annual accumulation, though large in dollar
amounts, is relatively small compared with the large amounts of assets that are
traded. For instance, in 2007 foreigners purchased $37.9 trillion dollars in U.S.
financial assets and sold $37.1 trillion dollars in assets, for a net accumulation of
$782 billion in financial assets, or about 2% of the amount of assets that were traded.
Marketable U.S. Treasury securities generally account for one of the largest
shares of U.S. securities that are traded by foreign investors, whether measured in
terms of the total amount of securities that are bought and sold, or in terms of the net
annual accumulation of financial assets. The low risk associated with these securities
makes them highly desired, especially during periods of market uncertainty. In 2007,
foreign trading in Treasury securities accounted for half of all the U.S. securities
traded by foreign investors during the year, although the net amount of Treasury
securities that were accumulated account for less than the net amount of other types
of U.S. government bonds and corporate bonds that were accumulated during the
year. Demand for Treasury securities remained strong even after the terrorist attacks
14 These data are available through the World Wide Web at Treasury Department’s Treasury
International Capital (TIC) reporting site: [http://www.treas.gov/tic/].
15 Bertaut, Carol C., William L. Griever, and Ralph W. Tryon, Understanding U.S. Cross-
Border Securities Data, Federal Reserve Bulletin, 2006. p. A59-A75.

CRS-11
of September 11, 2001, when important elements of the U.S. financial system were
temporarily shut down.16
Table 5. Transactions in Long-Term U.S. Securities, 2007
(in billions of dollars)
Marketable U.S. Govt. Corporate Corporate Foreign
Foreign
Total
Treasury
Bonds
Bonds
Stocks
Bonds
Stocks
Securities
Gross Purchases by Foreigners
$37,866.1
$15,086.5
$2,050.5
$1,912.3
$10,639.7
$2,961.8
$5,215.3
Gross Sales by Foreigners
37,083.8
14,885.4
1,824.4
1,529.2
10,444.2
3,090.4
5,310.2
Net Purchases by Foreigners
782.3
201.1
226.1
383.1
195.5
-128.6
-94.9
Source: Treasury Department International Capital data system, February 19, 2008.
Table 6 shows gross purchases, gross sales, and net sales of publicly traded
long-term U.S. Treasury securities, corporate stocks, and corporate bonds over the
seven-year period 2001 to 2007. At over $15 trillion, Treasury securities were the
most heavily traded of the three kinds of securities in 2007. From 1997 to 2001,
foreign official and private net acquisitions of Treasury securities plummeted as the
Federal government used its budget surpluses to retire large amounts of securities,
as indicated in Figure 3. The Federal government’s budget deficits from 2002
through 2007, however, provided new opportunities for foreign investors to build up
their holdings of Treasury securities.
Table 6. Foreign Transactions in U.S. Securities, 2000-2007
(in billions of dollars)
2001
2002
2003
2004
2005
2006
2007
U.S. Treasury Securities
Purchases
$5,267.7
$7,264.5
$8,001.5
$8,936.0 $10,051.2 $10,957.9 $15,086.5
Sales
5,249.2
7,144.5
7,737.9
8,584.0
9,713.1
10,762.4
14,885.4
Net
18.5
119.9
263.6
352.1
338.1
195.5
201.1
U.S. Corporate Stocks
Purchases
3,051.3
3,209.8
3,104.2
3,862.0
4,731.7
6,868.6
10,639.7
Sales
2,934.9
3,159.6
3,069.5
3,833.6
4,649.8
6,718.2
10,444.2
Net
116.4
50.2
34.7
28.5
82.0
150.4
195.5
U.S. Corporate Bonds
Purchases
741.0
820.7
979.9
1,171.4
1,277.0
1,678.5
1,912.3
Sales
519.1
638.4
714.2
861.9
904.8
1,167.7
1,529.2
Net
222.0
182.3
265.7
309.5
372.2
510.8
383.1
Source: Treasury Department International Capital data system, February 19, 2008.
16 For additional information, see CRS Report RS21102, International Capital Flows
Following the September 11 Attacks,
by James K. Jackson.

CRS-12
As Figure 3 indicates, foreign private purchases of Treasury securities turned
negative between 1998 and 2001 and again in 2006 as foreign private investors
experienced net sales of Treasury securities. From 2002 to 2006 and again in 2007,
foreign private investors returned to acquiring Treasury securities, but the amount
they acquired remained relatively level at $100 billion per year. In contrast, foreign
official net acquisitions of Treasury securities trended slightly upward between 2000
and 2002, but such net acquisitions more than doubled over the 2002 to 2004 period,
rising to $261 billion in 2004. In 2005, though, official purchases of Treasury
securities plummeted to less than $100 billion and were less than private purchases.
In 2006, private foreign investors again reduced their net holdings of Treasury
securities. This action was offset by a large increase in acquisitions of Treasury
securities by foreign governments, directed at least in part to slow the decline in the
international exchange value of the dollar. In 2007, foreign private investors returned
to acquiring treasury securities, with a net accumulation of $116 billion, while net
foreign official purchases dropped to about $60 billion.
Figure 3. Foreign Official and Private Purchases of U.S. Treasury
Securities, 1996-2007
$300
$250
rs
Official
$200
lla
o

$150
f d
Private
$100
s o
n

$50
illio
$0
B
-$50
-$100
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Year
Source: Department of Commerce
While the nominal amount of total purchases and sales of corporate bonds on
an annual basis has been much lower than that for Treasury securities, the strong net
accumulation of corporate bonds surpassed that of Treasury securities in 2007. This
attraction to corporate bonds likely reflects the attractiveness of bonds to foreign
investors as an alternative to Treasury securities and as a hedge against falling
interest rates. The price of a bond is inversely related to the interest rate, so lowering
interest rates raises the price of a bond and makes the bond more valuable. Net
accumulations of corporate stocks has been the most volatile of the three groups of
securities over the decade. High levels of stock accumulation at the beginning and
end of the period may well reflect low levels of accumulation of Treasury securities
and a rise in stocks prices that marked those periods. Economic uncertainties and

CRS-13
lower rates of national economic growth, however, characterized the years during the
middle part of the period.
Purchases and Sales of U.S. Securities by Foreign Investors
Some foreign investors are more active in U.S. securities markets — U.S.
Treasury securities, U.S. corporate stocks and bonds — than are others. Over the
period from 2001 to 2007, foreign investors are estimated to have accumulated over
$5 trillion in U.S. securities. As Table 7 indicates, the United Kingdom is estimated
to have accumulated $1.7 trillion U.S. securities over the 2001-2007 period.
Table 7. Net Foreign Purchases of U.S. Securities by Foreigners
(in billions of dollars)

2001
2002
2003
2004
2005
2006
2007
Total
Total
$501.2
$574.6
$663.3
$763.6
$839.1 $892.3 $782.3 $5,016.5
Total Europe
250.8
258.3
279.6
239.4
428.8
378.1
330.8
2,165.8
-France
8.5
2.4
-0.4
-9.1
19.7
36.2
10.6
68.1
-Germany
21.1
0.0
12.5
16.8
23.8
-5.3
8.9
77.8
-Italy
-2.8
2.3
-2.4
-2.1
1.0
-3.2
-9.4
-16.6
-Netherlands
9.3
-8.6
3.6
0.5
-6.7
4.2
14.0
16.2
-Sweden
3.1
4.9
2.9
-3.5
-9.5
5.7
6.3
9.9
-Switzerland
13.3
8.6
13.0
13.7
-4.7
7.7
-8.4
43.2
-United Kingdom
155.4
191.9
159.8
142.6
317.2
314.7
391.7
1,673.4
Canada
16.9
6.8
32.4
24.0
48.2
25.4
10.6
164.3
Latin America
80.5
92.2
108.5
149.4
146.1
217.2
156.8
950.6
-Mexico
8.3
10.2
10.8
28.2
18.9
14.6
8.6
99.6
Asia
155.7
203.4
234.4
364.7
221.5
266.3
262.8
1,708.8
-China
55.9
62.9
68.9
49.4
89.2
117.3
123.1
566.6
-Hong Kong
28.4
14.6
16.4
22.2
33.6
42.9
90.4
248.5
-Indonesia
-6.6
1.4
1.6
2.8
-1.4
1.7
2.7
2.2
-Japan
36.5
81.4
137.1
226.5
47.0
60.2
4.1
592.6
-Korea
0.3
13.0
12.2
15.7
6.1
14.5
6.3
68.1
-Malaysia
2.5
0.9
-1.4
-0.7
4.5
-0.0
5.1
11.0
-Philippines
1.1
-1.0
0.3
-0.6
1.2
-0.7
4.8
5.1
-Singapore
16.2
12.0
8.7
17.0
13.2
-1.5
10.2
75.7
-Taiwan
11.0
17.4
-1.9
10.7
10.7
4.9
8.0
60.9
-Thailand
0.9
-1.4
-5.6
-0.2
7.7
0.8
1.9
4.1
-Australia
-1.7
10.2
4.3
-8.5
-6.9
-2.5
6.1
0.9
Source: Developed by CRS from the Treasury Department’s International Capital data system.
February 19, 2008.
A large accumulation by British investors is not surprising given the long
historical involvement of British investors in the U.S. economy. Other foreign
investors have started acquiring U.S. securities more recently. Some, such as
Chinese investors, have moved rapidly to become major investors in some U.S.
securities markets. British investors are followed by Japanese investors as the second
largest foreign investors with $593 billion in U.S. securities during the 2001-2007
period, or less than one-half the amount owned by British investors. During the
seven year period, Chinese investors were the third most active investors in U.S.
securities, with $566 billion in securities holdings. Following China, Hong Kong
($248 billion), Canada ($164), Mexico ($97 billion), Germany ($78 billion),

CRS-14
Singapore ($76 billion), and South Korea ($68 billion) accumulated the largest
amounts of U.S. securities over the 2001-2007 period.
Treasury Securities. As previously indicated, foreign investors are active
participates in the U.S. Treasury securities market. Over the seven-year period of
2001-2007, foreign investors acquired on net (purchases less sales) over $1.5 trillion
dollars in Treasury securities, as indicated in Table 8. The United Kingdom acquired
an estimated $600 billion in U.S. publicly held and traded Treasury securities over
the 2001-2007 period, followed by Japan, which accumulated $308 billion during the
period. China, a recent participant in the U.S. Treasury securities market
accumulated the third largest amount of these securities with $163 billion in
holdings. Nearly half of China’s holdings were acquired during 2005 and 2007.
Canada ($53 billion) accumulated the next largest amount of Treasury securities,
followed by Hong Kong ($36 billion).
Table 8. Net Foreign Purchases of Publicly Traded U.S.
Treasury Securities
(in billions of dollars)
2001
2002
2003
2004
2005
2006
2007
Total
Total
$18.5 $119.9
$263.6
$352.1
$338.1 $195.5
$201.1 $1,488.8
Total Europe
-20.6
43.7
48.7
88.4
173.6
99.0
179.4
612.1
-France
-4.3
-0.3
-7.0
-10.2
9.6
-1.6
-6.2
-20.1
-Germany
-1.7
-3.9
11.0
8.8
14.5
2.1
-3.3
27.5
-Italy
-2.0
-0.3
-2.9
0.0
3.8
0.2
-1.4
-2.6
-Netherlands
-6.7
-17.0
0.4
-3.2
-6.1
0.7
1.5
-30.4
-Sweden
-1.2
2.9
0.4
3.2
1.8
0.7
2.5
10.4
-Switzerland
1.4
-0.4
4.9
5.3
-4.9
-2.9
-2.6
0.8
-United Kingdom
-7.3
61.6
32.8
78.7
134.1
91.8
208.1
599.8
Canada
-1.6
-5.2
10.4
16.1
21.5
14.2
-2.6
52.8
Latin America
4.3
20.0
17.1
33.5
68.4
12.0
88.5
243.9
-Mexico
0.2
4.0
5.3
8.4
9.8
-0.3
1.7
29.1
Asia
36.3
55.7
181.1
214.8
68.3
68.7
-68.0
556.9
-China
19.1
24.1
30.4
18.9
37.4
40.6
-8.0
162.5
-Hong Kong
7.2
-9.1
6.1
1.1
12.3
16.3
2.0
35.9
-Indonesia
-7.2
0.8
0.7
1.2
1.2
2.1
4.5
3.2
-Japan
16.1
30.5
146.5
166.4
-5.0
1.3
-47.4
308.4
-Korea
0.8
12.9
4.5
5.9
1.5
6.2
-17.9
13.9
-Malaysia
1.6
0.9
-0.3
0.4
1.1
-2.4
0.4
1.7
-Philippines
0.6
0.2
0.4
0.1
1.1
-0.2
3.1
5.3
-Singapore
-7.9
-2.6
-1.4
3.5
2.4
-2.2
2.4
-5.8
-Thailand
0.4
-1.9
-6.1
-0.4
8.4
1.3
0.8
2.5
-Australia
1.4
3.3
6.6
-2.2
0.1
-2.6
-1.3
5.4
Source: Developed by CRS from the Treasury Department’s International Capital data system,
February 19, 2008.
Corporate Stocks. Net foreign acquisitions of U.S. corporate stocks
reached a record high in 2007 as foreign investors acquired $196 billion in corporate
stocks, as indicated in Table 9. This amount exceeded the previous record of $150
billion in net acquisitions by foreign investors recorded in 2006. In total, foreign
investors accumulated $658 billion in U.S. corporate stocks in the 2001-2007 period,
most of which was acquired in the 2006-2007 period. British investors are by far the

CRS-15
largest investors in U.S. corporate stocks, with estimated holdings acquired over the
2001-2007 period totaling $235 billion. Over the 2001-2007 period, Canada and
France were the next two largest foreign acquirers of U.S. corporate stocks with such
investments estimated to total $69 billion and $62 billion, respectively. Hong Kong
($39 billion), Singapore ($23 billion) and the Netherlands ($16 billion), followed by
Japan ($14 billion) and Switzerland ($10 billion) are the next largest foreign
investors in U.S. corporate stocks.
Table 9. Net Foreign Purchases of U.S. Corporate Stocks
(in billions of dollars)
2001
2002
2003
2004
2005
2006
2007
Total
Total
$116.4
$50.2
$34.7
$28.5
$82.0 $150.4
195.5
657.7
Total Europe
88.1
32.9
21.4
19.6
39.6
97.1
89.2
387.9
-France
5.9
2.1
6.2
-0.9
7.7
21.7
19.5
62.3
-Germany
8.4
-0.1
-3.8
-2.4
-3.3
-8.0
0.6
-8.6
-Italy
2.2
1.5
0.4
-1.7
-2.6
-2.3
-4.3
-6.7
-Netherlands
10.9
4.3
0.0
1.7
-2.3
-5.4
6.9
16.2
-Sweden
3.6
0.8
3.4
0.8
-0.5
0.7
1.6
10.4
-Switzerland
3.5
2.8
-2.1
-1.2
1.3
1.2
-3.0
2.5
-United Kingdom
38.5
15.2
0.7
15.2
19.8
75.8
69.5
234.6
Canada
11.0
8.2
11.7
1.3
16.5
11.8
8.1
68.6
Latin America
-5.2
-15.4
-0.9
0.6
15.3
37.2
49.4
81.0
-Mexico
-0.7
0.5
-0.3
-0.2
-0.3
1.8
0.1
0.9
Asia
22.5
21.4
2.8
6.2
10.2
3.5
44.0
110.5
-China
0.0
0.2
-0.1
-0.3
-0.5
0.5
4.0
3.7
-Hong Kong
0.7
1.8
0.8
-0.8
1.1
-0.5
35.4
38.5
-Indonesia
0.1
-0.0
0.1
0.0
-0.1
-0.0
-0.1
0.0
-Japan
6.8
12.3
-2.2
2.8
0.1
-0.7
-5.0
14.2
-Korea
-0.1
0.1
-0.0
-0.0
-0.1
-0.1
0.1
-0.1
-Malaysia
-0.1
-0.0
-0.0
-0.1
-0.2
-0.0
0.3
-0.0
-Philippines
-0.0
-0.0
-0.0
0.0
0.1
0.0
0.0
0.1
-Singapore
13.1
8.2
3.5
-1.7
7.2
-4.5
-2.5
23.3
-Thailand
-0.0
0.0
-0.0
0.0
-0.0
-0.0
-0.0
-0.1
-Australia
0.1
3.0
-0.6
0.3
0.1
1.0
4.8
8.8
Source: Developed by CRS from the Treasury Department’s International Capital data system.
February 19, 2008.
Corporate Bonds. As Table 10 indicates, foreign investors have shown
particular interest in U.S. corporate bonds over the 2001-2007 period and
accumulated about $2.2 trillion in such securities during the seven-year period. A
large share of these accumulations is concentrated among a few large holders. For
instance, British investors hold nearly half of the foreign-owned U.S. corporate
bonds, with an estimated accumulation of $1.0 trillion over the 2001-2007 period.
Japanese investors trail behind their British counterparts, but acquired an estimated
$138 billion in corporate bonds in the 2001-2007 period. China ($129 billion),
France ($57 billion), Hong Kong ($57 billion), Switzerland ($34 billion), and
Singapore ($28 billion), and are estimated to be the next largest foreign investors in
U.S. corporate bonds during the 2001-2007 period. Latin American and Caribbean
countries acquired $420 billion in U.S. corporate bonds over the 2001-2007 period,
slightly greater than the $409 billion acquired by countries in Asia.

CRS-16
Table 10. Net Foreign Purchases of U.S. Corporate Bonds
(in billions of dollars)
2001
2002
2003
2004
2005
2006
2007
Total
Total
$222.0
$182.3
$265.7
$309.5
$372.2 $510.8 $383.1 $2,245.7
Total Europe
134.9
110.7
169.2
172.0
241.7
316.1
198.3
1,343.0
-France
3.0
2.6
4.0
7.6
13.2
22.1
4.3
56.8
-Germany
5.9
2.0
3.5
12.2
6.5
-11.8
5.4
23.6
-Italy
0.2
0.2
2.0
0.7
-0.1
-0.5
-8.5
-5.8
-Netherlands
2.5
1.5
2.3
2.1
2.8
3.2
-0.7
13.7
-Sweden
0.2
0.2
0.2
1.1
-0.4
2.2
1.1
4.7
-Switzerland
2.7
4.9
5.7
4.0
3.7
9.7
3.6
34.4
-United Kingdom
108.8
76.8
107.7
107.1
168.9
253.8
208.5
1,031.5
Canada
3.3
0.4
5.3
6.1
2.2
8.1
12.4
37.8
Latin America
54.7
40.9
61.1
67.8
47.7
101.3
46.8
420.4
-Mexico
1.3
2.2
3.0
15.1
1.6
3.9
1.9
28.9
Asia
27.6
26.4
27.8
60.1
70.9
76.9
119.0
408.9
-China
6.7
6.0
4.8
12.3
26.1
31.2
41.7
128.7
-Hong Kong
4.2
3.7
4.5
5.7
11.0
14.8
12.8
56.8
-Indonesia
0.1
0.1
0.0
-0.1
0.0
0.2
0.4
0.8
-Japan
6.1
10.9
10.6
33.5
25.6
12.6
38.6
137.9
-Korea
0.8
1.5
0.5
1.6
0.8
3.2
11.3
19.7
-Malaysia
0.1
0.1
0.0
0.1
1.3
1.1
2.1
4.8
-Philippines
0.2
0.1
0.1
0.2
0.1
0.2
0.2
1.1
-Singapore
5.4
1.3
3.0
4.2
1.0
6.0
6.9
27.8
-Thailand
0.0
0.2
0.4
0.1
-0.0
0.1
0.0
0.8
-Australia
-0.1
3.0
0.4
1.4
6.3
7.2
4.9
23.1
Source: Developed by CRS from the Treasury Department’s International Capital data system,
February 19, 2008.
Major Foreign Holdings of U.S. Long-Term Securities. As Table
11 indicates, total foreign holdings, or the cumulative amount, of marketable and
non-marketable U.S. Treasury bills, bonds, and notes amounted to over $2.4 trillion
at year-end 2007. These holdings are divided into foreign private holdings
designated by the individual country data and holdings by foreign official institutions,
which amounted to $1.5 trillion in 2007, or more than the $882 billion accumulated
by private investors. The data for foreign official institutions consist of more than
the foreign reserve asset holdings of central banks and of other foreign government
institutions involved in the formulation of international monetary policy. These
holdings also include the holdings of foreign government-sponsored investment
funds and other foreign government investment funds. Distinguishing between
foreign private and official holdings, however, can be difficult, because chains of
intermediaries can obscure the country and the type of foreign holder. As a result,
foreign official holdings likely are undercounted in these data.
With $571 billion in long-term Treasury securities holdings accumulated over
the 2001-2007 period, Japan is the single largest holder of such securities. Over the
same period, China had accumulated $406 billion in such holdings by 2007.
Between 2001 and 2007, China increased its holdings of Treasury securities by more
than five times. With $300 billion, the United Kingdom ranked third in holdings

CRS-17
behind China and held more than the $127 billion accumulated by the oil exporting
countries.17
Table 11. Major Foreign Holdings of Long-Term U.S. Treasury
Securities, or Cumulative Amounts
(in billions of dollars)
Country
2007
2006
2005
2004
2003
2002
2001
Japan
$571.2
$622.9
$670.0
$689.9
$550.8
$378.1 $317.9
China
405.5
396.9
310.0
222.9
159.0
118.4
78.6
United Kingdom
299.7
92.6
146.0
95.8
82.2
80.8
45.0
Oil Exporters
126.7
110.2
78.2
62.1
42.6
49.6
46.8
Brazil
128.8
52.1
28.7
15.2
11.8
12.7
N.A.
Luxembourg
76.3
60.0
35.6
41.4
25.4
23.9
22.4
Hong Kong
54.3
54.0
40.3
45.1
50.0
47.5
47.7
Taiwan
51.0
59.4
68.1
67.9
50.9
37.4
35.3
Korea
45.6
66.7
69.0
55.0
63.1
38.0
32.8
Carib Banking Centers
81.3
72.3
77.2
51.1
47.3
50.3
27.6
Germany
44.1
46.0
49.9
50.3
47.8
37.3
47.8
Mexico
37.2
34.9
35.0
32.8
27.4
24.9
19.3
Singapore
36.8
31.3
33.0
30.4
21.2
17.8
20.0
Switzerland
32.8
34.3
30.8
41.7
46.1
34.0
18.7
Canada
24.0
26.9
27.9
33.3
24.2
10.4
15.4
Turkey
24.0
23.0
17.4
12.0
15.7
13.5
N.A.
Netherlands
19.9
20.7
15.7
16.0
12.3
13.0
5.2
France
15.3
26.4
30.9
20.1
17.2
22.9
20.6
Thailand
24.6
16.9
16.1
12.5
11.7
17.2
15.7
Sweden
14.2
12.0
16.3
17.0
9.9
12.3
N.A.
Russia
13.9
7.0
N.A
N.A
N.A
N.A
N.A
Italy
14.1
13.2
15.4
12.9
13.2
16.3
N.A.
Poland
15.4
13.9
13.7
10.8
10.7
N.A.
N.A.
India
13.7
14.6
N.A.
15.0
16.7
9.2
N.A.
Ireland
14.9
11.6
19.7
16.2
14.9
7.0
N.A.
Malaysia
11.9
9.2
N.A
N.A
N.A
N.A
N.A
All Other
168.0
148.0
159.4
128.9
119.2
110.1
188.8
Grand Total
2,353.4 2,103.0 2,033.9 1,849.3 1,523.1 1,235.6 1,040.1
Of which:
Foreign Official
1,471.4 1,449.0 1,279.9 1,233.3
933.9
760.1
619.4
Treasury Bills
196.2
176.8
201.9
245.2
212.0
190.4
161.7
T-Bonds & Notes
1,275.3 1,272.0 1,078.1
988.1
721.9
569.7
457.7
Source: U.S. Department of the Treasury. Data represent estimated foreign holdings of U.S. Treasury
marketable and non-marketable bills, bonds, and notes. Data represent totals as of the end of
December of the year indicated.
Table 12 shows the relative shares of foreign holdings of total U.S. securities
from 1974 to 2000. These data indicate that between 1974 and 1984, there was little
growth in the relative shares of foreign holdings of various types of U.S. long-term
17 Oil exporters include Ecuador, Venezuela, Indonesia, Bahrain, Iran, Iraq, Kuwait, Oman,
Qatar,Saudi Arabia, the United Arab Emirates, Algeria, Gabon, Libya, and Nigeria.

CRS-18
securities. Since 1984, however, there has been significant growth in the foreign
share of all types of long-term securities, particularly in the foreign share of long-
term marketable U.S. Treasury securities, which grew from 13% of the total amount
outstanding to in 1984 to 35% of the total in 2000. In total, foreign investors hold
10% of the combined value of outstanding U.S. corporate equity, corporate and
municipal bonds, marketable Treasury securities, and other U.S. government
securities.
Table 12. Market Value of Foreign Holdings of U.S. Long-Term
Securities, by Type of Security
(in billions of dollars)
Percent foreign
Total outstanding
Foreign owned
owned
Corporate equity
1974
$663
$25
3.8%
1978
1,012
48
4.7%
1984
1,899
105
5.5%
1989
4,212
275
6.5%
1994
7,183
398
5.5%
2000
23,038
1,711
7.4%
Corporate and municipal debts
1974
458
N.A.
N.A.
1978
680
7
1.0%
1984
1,149
31
2.7%
1989
2,400
190
7.9%
1994
3,342
276
8.3%
2000
5,404
712
13.2%
Marketable U.S. Treasury securities
1974
163
24
14.7%
1978
326
39
12.0%
1984
873
118
13.5%
1989
1,599
333
20.8%
1994
2,392
464
19.4%
2000
2,508
885
35.3%
U.S. government corporation and federally sponsored
agency securities
1974
106
N.A.
N.A.
1978
188
5
2.7%
1984
529
13
2.5%
1989
1,267
48
3.8%
1994
2,199
107
4.9%
2000
3,968
257
6.4%
Combined market

CRS-19
Percent foreign
Total outstanding
Foreign owned
owned
1974
1,390
67
4.8%
1978
2,206
99
4.5%
1984
4,450
268
6.0%
1989
9,478
847
8.9%
1994
15,116
1,244
8.2%
2000
34,918
3,576
10.2%
Source: Griever, William L., Gary A. Lee, and Francis E. Warnock, The U.S. System for Measuring
Cross-Border Investment in Securities: A Primer with a Discussion of Recent Developments. Federal
Reserve Bulletin
, October 2001. 639.
Economic Implications
The large foreign accumulation of U.S. securities, particularly of U.S.
Treasury securities, has spurred some observers to consider the potential for a
financial crisis. Such a crisis could result from a coordinated withdrawal from U.S.
financial markets staged by foreign investors for economic or political reasons or a
sharp drop in U.S. equity prices as a result of an uncoordinated correction in market
prices.18 Congress likely would find itself embroiled in any such crisis through its
direct role in conducting fiscal policy and in its indirect role in the conduct of
monetary policy through its supervisory responsibility over the Federal Reserve. A
coordinated withdrawal from U.S. securities markets by foreign investors seems
highly unlikely, particularly since the vast majority of the investors are private
entities that presumably would find it difficult to coordinate a withdrawal.
It is uncertain what events could provoke a coordinated withdrawal from U.S.
securities markets. Some surmise that international concern over the ability of the
economy to service its large foreign debt could spur foreign investors to rein in their
purchases of U.S. financial assets, or that a loss of confidence in the ability of
national U.S. policymakers to conduct economic policies that are perceived abroad
as prudent and stabilizing could cause foreign investors to reassess their estimates of
the risks involved in holding dollar-denominated assets. In other cases, the
international linkages that connect national capital markets could be the conduit
through which events in one market are quickly spread to other markets and ignite
an abrupt, seemingly uncoordinated decline in equity prices. Such a market
correction, or a market panic, is expected to be short-lived, however, as investors
would likely move to take advantage of a drop in equity prices to acquire equities
that would be deemed to be temporarily undervalued. For instance, concerns in U.S.
capital markets in early June 2006 over prospects that a rise in consumer prices and
in the core inflation rate would push the Federal Reserve to raise key U.S. interest
rates sparked a drop in prices in U.S. capital and equity markets where inflation
18 For a longer presentation of this topic, see CRS Report RL34319, Foreign Ownership of
U.S. Financial Assets: Implications of a Withdrawal
, by James K. Jackson.

CRS-20
concerns quickly spread to markets in Europe and Asia, where equity prices fell as
well.19
Short of a financial crisis, foreign capital inflows are playing an important
role in the economy. Such inflows bridge the gap between U.S. supplies and
demands for credit, thereby allowing the consumers and businesses to finance
purchases at interest rates that are lower than they would be without the capital
inflows. Similarly, capital inflows allow federal, state, and local governments to
finance their budget deficits at rates that are lower then they would be otherwise.
Capital inflows, however, are not without some cost to the economy. Foreign
ownership of U.S. securities means that foreigners receive any dividend or interest
payments that arise from those securities and that the economy experiences a transfer
of wealth associated with flows of goods and capital across borders. To the extent
that foreign investors repatriate their earnings, financial resources within the
economy are reduced. Increased foreign ownership of corporate stocks and bonds
also blurs the distinction between domestic and foreign-owned firms and may well
influence the way firms view trade, economic, and other types of public policies,
thereby affecting their relationships with Congress. In addition, as long as credit
demands in the economy outstrip domestic supplies of credit, foreign sources of
capital will be necessary to reduce pressure on U.S. interest rates. To the extent that
foreign investors become reluctant for any reason to continue to supply the economy
with capital, Congress could find it more difficult to finance a budget deficit by
drawing on domestic capital markets without the economy feeling the impact of such
borrowing.
The prospect of continued high levels of U.S. borrowing from the rest of the
world concerns various international organizations, such as the International
Monetary Fund (IMF) and the Organization for Economic Cooperation and
Development (OECD). In its April 2006 edition of World Economic Outlook,20 the
IMF highlighted the role U.S. economic policies played in the short run in stemming
a potentially serious economic slowdown in both the United States and the global
economy. Over the long run, however, the IMF argues that the saving-investment
imbalance in the U.S. economy threatens to affect global interest rates, productivity
and income, and the growing deficits in the Nation’s already large current account
(exports, imports, and official capital flows) as a result of sustained high levels of
capital inflows. These effects could be especially serious for many of the developing
nations that rely on borrowing in global financial markets. Rising interest rates in the
United States could raise interest rates globally, which would raise borrowing costs
to developing countries. The IMF argues that, “over time changes in U.S. interest
19 Masters, Brooke A., Pondering the Bear Necessities, The Washington Post, June 7, 2006,
p. D1; Samuelson, Robert J., Global Capital On the Run, The Washington Post, June 14,
2006, p. A23.
20 World Economic Outlook, International Monetary Fund. Washington, DC, April 2006.

CRS-21
rates feed through about one-to-one to foreign interest rates, implying that, in the
long run, the rest of the world is affected in a similar manner to the United States.”21
In a May 2004 publication,22 the OECD also questioned the feasibility of
sustaining large trade deficits given that the deficits are accommodated by foreign
investors who must remain willing to hold dollar-denominated assets. Foreign
investors essentially engage in cross-border risk management and will assess their
estimates of risk based on a broad range of factors, including the ability of the
economy to support a potentially increasing level of debt. According to the OECD,
“While the United States remains an attractive investment destination in many
respects, it is uncertain for how long foreigners will continue to accommodate debt
and equity claims against U.S. residents at the recent pace.”23
The highly evolved state of financial and economic linkages between the
United States and other foreign economies significantly reduces the prospects of a
financial collapse in the United States should foreigners attempt a coordinated
withdrawal from U.S. securities markets. A withdrawal by any single large foreign
investor, or a group of investors, from the U.S. financial markets at a time when
those funds are necessary for closing the gap between domestic demand and supply
of funds would likely have significant short-run effects. Any such coordinated
attempt to withdraw substantial amounts of funds abruptly from the U.S. markets
would ordinarily be noticed quickly by domestic and international financial markets.
As investors became aware of any large withdrawals, they likely would follow suit,
driving the prices of the asset down sharply and causing U.S. interest rates to rise
abruptly. Any investor selling assets at this point likely would experience a
significant loss in the value of those assets.
A similar downward spiral would occur over the short-run in the value of the
dollar if foreign investors attempted to convert their dollar holdings into foreign
currency. The financial and currency markets likely would adjust quickly to the
demands of foreign sellers of dollars by driving up the price of foreign currencies.
This likely would result in a decline in the value of the dollar and a further erosion
in the value of the assets of foreigners attempting to withdraw from the U.S. markets.
Over the long run, the economic and financial effects of a foreign withdrawal
from U.S. financial markets would be limited because those factors which allowed
foreigners to withdraw would attract other foreign investors to the U.S. markets. As
U.S. interest rates rose in response to the selling of securities, other investors likely
would be attracted to the higher returns of the assets, which would curb the decline
in the prices in the securities. Also, the rise in U.S. interest rates would attract
foreign capital, which would limit the rise in interest rates. A decline in the value of
the dollar against other currencies would also improve the international price
21 World Economic Outlook, International Monetary Fund. Washington, DC, April 2004.
pp. 69-70.
22 The Challenges of Narrowing the U.S. Current Account Deficit. OECD Economic
Outlook
No. 75, May 2004. Available at [http://www.oecd.org/dataoecd/4/58/
31920358.pdf].
23 Ibid., p. 31.

CRS-22
competitiveness of U.S. goods. As a result, U.S. exports would increase, likely
narrowing the gap between the earnings on U.S. exports and the amount Americans
spend on imports, thereby reducing the amount of foreign capital the U.S. economy
would need. Furthermore, those foreign investors who are successful in withdrawing
their funds from the U.S. markets would have to find suitable alternatives. Even if
they did not reinvest their finds in the United States, the infusion of capital back into
foreign capital markets likely would have spillover effects on the United States and
on U.S. securities.
It also seems unlikely that the Federal Reserve would sit on the sidelines
watching while the U.S. economy suffered a financial collapse. In the immediate
aftermath of the September 11, 2001 terrorist attacks, the U.S. financial and foreign
exchange market activities were slightly out of the norm, but actions by the Federal
Reserve and by other central banks helped head off a financial panic and a loss of
confidence by ensuring that the financial system was supplied with liquidity through
coordinated actions. Central bank coordination in times of crises is not uncommon,
but the speed with which the coordination was reached and the aggressiveness of the
banks to stem any loss of confidence in the financial system demonstrate the
recognition that national economies have become highly interconnected and that a
shock to one can create spillover effects onto other economies and markets.24
24 Jackson, International Capital Flows Following the September 11 Attacks.