eli5: if two countries both own portions of each others debt, does that debt cancel out?
In: 397
Not really because those debts serve different uses. Two countries could negotiate the debt away but it’s not immediate.
US Treasury bonds are viewed as “good as cash” which means a lot of governments will have at least a part of their currency reserves in the form of US government debt. And countries often owe the US government for various things. For example, the WWII lend lease debt from the UK to the US. They paid it off on a schedule and even though the UK government easily had the money to pay it off, they didn’t.
At the end of the day government debt is not a simple thing. All modern currencies like the USD and Euro are essentially a representation of a country’s debt to another and are not that different from for example China owning a bunch of US treasury bonds.
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