China’s Threat to the Dollar is Real – Paul Craig Roberts

From CounterPunch:

Twenty-four hours after I reported China’s announcement that China, not the Federal Reserve, controls US interest rates by its decision to purchase, hold, or dump US Treasury bonds, the news of the announcement appeared in sanitized and unthreatening form in a few US news sources.

The Washington Post found an economics professor at the University of Wisconsin to provide reassurances that it was “not really a credible threat” that China would intervene in currency or bond markets in any way that could hurt the dollar’s value or raise US interest rates, because China would hurt its own pocketbook by such actions. [Full Text]

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. Read also Long-term RMB Reform Benefits China and US by He Fan, a researcher at the China Academy of Social Sciences:

… Thanks to the trade surplus, China has accumulated a large sum of US dollars and its world largest foreign exchange reserve is mostly in US dollars. Such a big sum, a considerable portion of which is in the form of US treasury bonds, contributes a great deal to maintaining the position of the US dollar as an international currency.

Russia, Switzerland and several other countries have restructured their foreign exchange reserve and reduced the US dollars they hold. China is unlikely to follow suit as long as yuan’s exchange rate is stable against the US dollar.

The Chinese central bank will be forced to sell US dollars once the renminbi appreciates dramatically, which might lead to a mass depreciation of the US dollar against other currencies.
[Full Text]

August 11, 2007 7:05 AM
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