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

April 30, 2009 9:40 PM
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