Our Best Friends: Foreign Central Banks

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Foreign central banks have added greatly to their holdings of Treasuries over the past 2 years. While this was going on, Brad Setser commented (April 14, 2007) that the world's biggest current account deficit had been "financed almost exclusively by the official sector over the last two quarters."

On this point, questions abound: Will the official sector continue to step up to the plate? Do they have any choice? Can government decisions arrest, mitigate, deny the broader pull of private capital?