(Bloomberg) -- Treasury Secretary Steven Mnuchin isn’t worried that China would use its $1.2 trillion pile of Treasuries holdings as a bargaining chip for a better trade deal.

“I am not losing any sleep over this issue. The Treasuries market is very liquid, this has never come up in any of our discussions whatsoever,” Mnuchin told reporters during a briefing on Saturday in Bali, Indonesia, where he’s attending the annual International Monetary Fund meetings.

“We have plenty of buyers for Treasuries,” he said, adding that China is “free to do what they want to do.”

An escalating tit-for-tat tariff war has fueled speculation that China could threaten to draw down its Treasury holdings, potentially sending yields higher and adding to volatility for the greenback. The country’s ownership of U.S. bonds, bills and notes slipped to a six-month low in July -- the latest data available -- just as the U.S.-China trade war was kicking off with the first round of U.S. tariffs on Chinese goods, and in-kind retaliation.

The U.S. can ill-afford to see weaker demand for its debt from its major buyers. With budget deficits rising in coming years and tax cuts approved in December expected to hurt revenue, the Treasury has to sell more securities to pay the government’s expenses. Some observers have said a wide-scale sell-off is unlikely given that China has few alternatives to invest in.

Mnuchin said no decision has been made over whether President Donald Trump will meet Chinese President Xi Jinping next month. White House economic adviser Larry Kudlow has said the leaders may meet at the Group of 20 meeting in Argentina from Nov. 30-Dec. 1.

The Trump administration is increasingly turning its attention to currencies as a tool to address improvements in trade deals.

The U.S.’s new trade deal with Canada and Mexico adds a currency provision that commits them to maintain market-determined exchange rates and refrain from competitive devaluations of their currencies. The pledge won’t have much effect on policy-making in the three nations, all of which have free-floating exchange rates. But it could serve as a template for future trade deals, giving the U.S. leverage over countries such as China.

“The currency issues are something that we would like to include in future trade agreements with everybody,” Mnuchin said on Saturday.

In an interview on Thursday in Bali, Mnuchin said the U.S. wants to make sure the depreciation in China’s currency isn’t a “competitive devaluation.” The yuan has fallen more than 6 percent this year against the dollar. People’s Bank of China Governor Yi Gang on Saturday said the country won’t use its currency as a weapon in a trade conflict.

(Updates with comments from Mnuchin.)

--With assistance from Andrew Mayeda.

To contact the reporter on this story: Saleha Mohsin in Washington at smohsin2@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, ;Alex Wayne at awayne3@bloomberg.net, Sarah McGregor, Malcolm Scott

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