China Tries to Wriggle Out of the US Dollar Trap
From the introduction to an article on YaleGlobal by Wenran Jiang:
While the world waits for China to flex its economic muscle to ease the crisis, China’s exposure to the US dollar is a bigger issue with which the country has to contend. According to China scholar Wenran Jiang, Beijing is already taking significant steps to rectify this situation. Nonetheless, with over $1 trillion in US dollar denominated reserves, and additional exposure through trading partnerships and resource needs, this situation will not be fixed in a few months nor is there one solution. China is employing a multi-pronged approach to reduce its US dollar exposure by seeking to foster greater use of its domestic currency, the RMB, in trade agreements and by making purchases or direct investments in natural resources and hard assets. For the moment, the pace may appear slow to outside observers, but as Jiang notes, China walks a fine line between sufficient diversification and maintaining the value of its dollar assets. Were China to make a precipitous withdrawal from dollar assets, the market response would be tumultuous and probably not to Beijing’s benefit. In the end, China’s shift away from dollar dependence is likely to rebalance the world economy
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China has ‘canceled US credit card’: lawmaker
WASHINGTON, April 30 (AFP) May 01, 2009
China, wary of the troubled US economy, has already “canceled America’s credit card” by cutting down purchases of debt, a US congressman said Thursday.
China has the world’s largest foreign reserves, believed to be mostly in dollars, along with around 800 billion dollars in US Treasury bonds, more than any other country.
But Treasury Department data shows that investors in China have sharply curtailed their purchases of bonds in January and February.
Representative Mark Kirk, a member of the House Appropriations Committee and co-chair of a group of lawmakers promoting relations with Beijing, said China had “very legitimate” concerns about its investments.
“It would appear, quietly and with deference and politeness, that China has canceled America’s credit card,” Kirk told the Committee of 100, a Chinese-American group.
“I’m not sure too many people on Capitol Hill realize that this is now happening,” he said.
The Republican lawmaker said that China was justified in concerns about returns from finance giants Fannie Mae and Freddie Mac, which were bailed out by the US government due to the financial crisis.
Kirk said he was the first member of Congress to tour the Bureau of Public Debt, which trades bonds, and was alarmed at how much debt was being bought by the US Federal Reserve due to absence of foreign investors.
“There will come a time where the lack of Chinese participation may have a significant impact,” Kirk said.
“We should track that, because up until last month they were the number one provider of currency to the United States and now they’re gone.”
With China’s economy also hit by the global economic crisis, Premier Wen Jiabao has openly voiced concern about the status of his country’s investments in the United States.
China has also floated replacing the dollar as the key international currency with a basket of units bringing in the euro, sterling and yen.
Dollar is still srong in international market because of it being one of the largest democracy and stable government. in chinese case, the government is one party rule and can happen anything like soviet union, so at this moment there is no way chinese currency can float in the international market. may be in future, when it become more open and free society and people of the world have more confident in chinese system.
What democracy got to do with economic? With no one willing to accept IOU, How you think they are going to finance all those bail out other than printing money?
It’s a Straw man argument. A democracy can just as easily collapse in this financial crisis ie. Iceland