Denmark’s recent threat to sell its holdings of U.S. government debt in response to American interest in Greenland may seem significant, but its actual impact would likely be negligible. A Danish pension fund, AkademikerPension, plans to offload about $100 million in U.S. Treasuries. This decision stems from worries about the U.S. credit rating, but the ongoing dispute over Greenland has also made the sell-off easier to justify.
At the World Economic Forum, President Trump dismissed the notion of Denmark’s threat, insisting that the United States “holds all the cards.” He is right. Many fail to grasp what it truly means when nations say they “hold U.S. debt” or that the U.S. is a debtor nation, reflecting a misunderstanding of the mechanics of the debt market.
Countries typically maintain a central bank to manage foreign currency reserves and gold, which serve multiple purposes, such as stabilizing the domestic currency and facilitating international trade. Much of these reserves include U.S. Treasury securities, sought after for their perceived safety and the strength of the U.S. backing. Notably, over 56% of global allocated foreign exchange reserves are held in U.S. dollars, emphasizing its dominant role in international finance.
U.S. securities are attractive not just for their backing but also for the liquidity they provide. Total foreign holdings of U.S. securities reached approximately $30.9 trillion, reflecting the unparalleled structure of the American economy. The U.S. dollar also plays a central role in global trade, showing up on one side of nearly 90% of foreign exchange transactions. When transactions occur in other currencies, they often involve conversion to dollars, highlighting the dollar’s integral role.
Even if countries united in a sweeping move to sell off U.S. debt, the consequences for the U.S. might be minimal. Maturity dates on Treasury bills, notes, and bonds mean that the U.S. only has to meet obligations at maturity, rendering the current holders less pertinent. Should a mass sell-off occur, prices might drop, yet the U.S. Treasury could buy back its debt at a discount. In a twisted sense, such an event could even position Trump as a figure who lessened the national debt.
The notion that Denmark’s current $100 million sell-off would shake U.S. markets is unfounded. This amount pales in comparison to the nearly $500 to $900 billion in average daily trading volume of U.S. Treasuries. U.S. Treasury Secretary Scott Bessent has stated that Denmark’s actions are marginal and in line with their long-standing pattern of reducing these holdings.
European leaders have also floated the idea of divesting from U.S. securities entirely, which could turn disastrous for European economies. The rationale for investing in American firms stems from the potential for high returns. Divesting from successful U.S. companies to invest in less attractive alternatives makes little sense economically. Furthermore, the vast majority of foreign investment in U.S. equities is held by private entities rather than governments. Any move to force private firms to divest would likely lead to significant economic fallout, diminishing asset values.
Discussions about moving away from the dollar as a dominant currency are not recent but have failed to materialize into action. Even competing powers like China struggle to promote the yuan as a desirable alternative on a broad scale, having minimal success in convincing partners to abandon the dollar system.
Ultimately, while Denmark’s threat may be more about political posturing, the reality is that such actions would not deliver a blow to the U.S. economy. The dollar’s dominance and the strategic importance of U.S. debt ensure that it remains a cornerstone of both international finance and trade, leaving European threats largely unfounded.
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