UPSC Prelims 2024 Question on –US Treasury Bonds Default
Q. Statement I: If the United States of America (USA) were to default on its debt, holders of US Treasury Bonds would not be able to exercise their claims to receive payment.
Statement II: The USA Government debt is not backed by any hard assets, but only by the faith of the Government.
Which one of the following is correct in respect of the above statements?
✅ Correct Answer: (a)
Explanation:
Statement I is correct: If the USA defaults on its debt, holders of Treasury Bonds cannot enforce payment because repayment depends entirely on the government’s willingness and ability to pay.
Statement II is correct: US Treasury securities are backed by the “full faith and credit” of the US Government, not by any hard or physical assets.
Statement II correctly explains Statement I: Since US debt is backed only by government credibility, a default would leave bondholders without enforceable claims.
