Foreign Holdings of Federal Debt (CRS Report for Congress)
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| Release Date |
Revised June 18, 2024 |
| Report Number |
RS22331 |
| Report Type |
Report |
| Authors |
Marc Labonte, Specialist in Macroeconomic Policy; Jared Conrad Nagel, Information Research Specialist |
| Source Agency |
Congressional Research Service |
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Summary:
This report presents current data on ownership of U.S. 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, U.S. Treasury securities are sold to investors. Treasury securities may be purchased directly from the Treasury or on the secondary market by individual private investors, financial institutions in the United States or overseas, and foreign, state, or local governments.
From December 2014 to December 2018, foreign holdings of debt increased by $0.1 trillion to approximately $6.3 trillion. During the same period, total publicly held debt increased by approximately $3.1 trillion to $16.1 trillion. Because the total debt has increased faster than the debt held by foreigners, the share of federal debt held by foreigners has declined in recent years. In December 2018, foreigners held 39% of the publicly held debt. Interest on the debt paid to foreigners in 2018 was $120.2 billion.
The top three estimated foreign holders of federal debt by country, ranked in descending order as of December 2018, are China ($1.1 trillion), Japan ($1.0 trillion), and Brazil ($0.3 trillion). Based on these estimates, China holds approximately 17.9% of all foreign investment in U.S. privately held federal debt; Japan holds approximately 16.6%; and Brazil holds approximately 4.8%. While China and Japan remain, by far, the largest holders of federal debt, their holdings have fallen since 2014 in dollar terms and as a share of total foreign holdings.
Foreign holdings can be divided into official (governmental investment) and private sources. 63.0% ($4.0 trillion) of foreign holdings in U.S. federal debt are held by governmental sources. Private investors hold the other 37.0% ($2.3 trillion). After increasing for several years, overall foreign holdings have been relatively flat since 2013 in dollar terms.
From an economic perspective, foreign holdings of federal debt can be viewed in the broader context of U.S. savings, investment, and borrowing from abroad. For decades, the United States has saved less than it invests. Domestic saving is composed of saving by U.S. households, businesses, and governments; by accounting identity, when the government runs budget deficits, it reduces domestic saving. By the same accounting identity, the shortfall between U.S. saving and physical investment is met by borrowing from abroad. To be a net borrower from abroad, the United States must run a trade deficit (it must buy more imports from foreigners than it sells in exports to foreigners). Borrowing from abroad has occurred through foreign purchases of both U.S. government and U.S. private securities and other assets.
As a result of foreign purchases of Treasury securities, the federal government must send U.S. income abroad to foreigners. If the overall economy is larger as a result of federal borrowing (because the borrowing stimulated economic recovery or was used to productively add to the U.S. capital stock, for example), then this outcome may leave the United States better off overall on net despite the transfer of income abroad. In other words, without foreign borrowing, U.S. income would be lower than it currently is net of foreign interest payments in this scenario.
