<p>In 1), you assumed that there is somebody who wants to buy European debt holdings, so you're describing a positive demand shock in the market for European debt. You're right that, if this demand for european debt originates from outside of the euro area, that person will buy euro's and sell their own currency leading to the appreciation you describe.</p>
<p>If the Saudi's, however, wake up in the morning with a taste for selling their European debt holdings, then that's a negative demand shock: they are reducing their demand for European debt. If they sell it, there will be deficient demand or excess supply in the market for European debt (i.e., price will fall and interest rates will rise). The sale will be paid for in euros (or at least we can assume so) but the Saudi's were getting rid of their euro-denominated-holdings, so they probably don't want to hold euro-currency either. So they'll sell the euros in the FX market, where the price will fall just enough to restore equilibrium in the FX market (i.e., all euros that the Saudi's want to sell have to find a new owner, and the price of the euro will fall until enough buyers in the FX market are convinced to absorb those euros).</p>

CC BY-SA 4.0
2024-07-25T08:12:13.297Z
We would have also the moral effects of getting rid of these bonds. The traders would understand that countries don't need/TRUST European bonds anymore, so everyone starts getting rid of their bonds and/or selling euros (spot or futures) due to the potential depreciation of euros and trust issues and price drop. I think this can also have an important effect on euro prices.
Otto
CC BY-SA 4.0
2024-07-19T07:59:00.827Z
2024-07-19T07:59:00.827Z
Wecon
<p>I read news about Saudi Arabia and I have a question.</p>
<p>How to explain that if Saudi Arabia will sell off European debt holdings (+Euro bonds) then euro will be depreciated?</p>
<p>My attempts to explain don't lead me to right conclusion:</p>
<p>1)Let's assume that somebody want to buy European debt holdings and  for this purpose buy large amount of euro on the Forex.</p>
<p>2)If it is so then euro will be appreciated because demand will be increased.</p>
<p>But euro must be depreciated indeed (as it mentioned in news).</p>
<p>Where did I go wrong?</p>
<p>Thanks.</p>

<macroeconomics><currency><exchange-rates><bonds>
Why if Saudi Arabia will sell off European debt holdings then euro will be depreciated?
Mike_bb
# Why if Saudi Arabia will sell off European debt holdings then euro will be depreciated?

(Asked by: username_0 on 2024-07-15)

I read news about Saudi Arabia and I have a question.

How to explain that if Saudi Arabia will sell off European debt holdings (+Euro bonds) then euro will be depreciated?

My attempts to explain don't lead me to right conclusion:

1)Let's assume that somebody want to buy European debt holdings and for this purpose buy large amount of euro on the Forex.

2)If it is so then euro will be appreciated because demand will be increased.

But euro must be depreciated indeed (as it mentioned in news).

Where did I go wrong?

Thanks.

**Tags:** macroeconomics, currency, exchange-rates, bonds

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## 1 answers

### Answer by username_1 on 2024-07-19. Score: 2 | Accepted answer

In 1), you assumed that there is somebody who wants to buy European debt holdings, so you're describing a positive demand shock in the market for European debt. You're right that, if this demand for european debt originates from outside of the euro area, that person will buy euro's and sell their own currency leading to the appreciation you describe.

If the Saudi's, however, wake up in the morning with a taste for selling their European debt holdings, then that's a negative demand shock: they are reducing their demand for European debt. If they sell it, there will be deficient demand or excess supply in the market for European debt (i.e., price will fall and interest rates will rise). The sale will be paid for in euros (or at least we can assume so) but the Saudi's were getting rid of their euro-denominated-holdings, so they probably don't want to hold euro-currency either. So they'll sell the euros in the FX market, where the price will fall just enough to restore equilibrium in the FX market (i.e., all euros that the Saudi's want to sell have to find a new owner, and the price of the euro will fall until enough buyers in the FX market are convinced to absorb those euros).

> **Comments:**
> **username_2**: We would have also the moral effects of getting rid of these bonds. The traders would understand that countries don't need/TRUST European bonds anymore, so everyone starts getting rid of their bonds and/or selling euros (spot or futures) due to the potential depreciation of euros and trust issues and price drop. I think this can also have an important effect on euro prices.  

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