eli5: if two countries both own portions of each others debt, does that debt cancel out?

Question

eli5: if two countries both own portions of each others debt, does that debt cancel out?

In: 397

Answer 1

Countries’ debt isn’t typically owed to other countries, but to investors. Countries issue bonds they sell to investors with specific maturity dates and interest rates. Investors (could be individuals, but mostly institutional investors like retirement/pension funds, insurance companies, university endowments). Countries might buy other country’s bonds as a way to park foreign currency reserves, but it’s done so strategically and not something they’d necessarily want to have cancel — which would be difficult anyhow due to differences in maturity, interest rate, exchange rates and all.