“>>"China would receive greenbacks, they might object to their loss of leverage over our government
...but they wouldn't be losing anything else."
If all outstanding debt held by our creditors in the form of treasuries and all FRN's held as savings were converted into new fiat, then everyone would lose, because every real asset would reprice higher following the conversion. It would be a forced devaluation of the currency.
It's actually very similar to what FDR did with gold. FDR confiscated gold and paid $21 in FRN's per ounce for it- post conversion, gold went right to $35 an ounce. The Federal Reserve Note experienced a forced devaluation, which was borne by those who saved in real assets like gold in the hopes of escaping just such a devaluation.
If existing FRN's in the hands of US savers were returned to them as new Greenbacks, each unit of the new money would have less buying power than each FRN they held previously, because the new Greenback would belong to a currency pool swollen by the retirement of securities through the same issue of new money.
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