Columnist Robert J. Samuelson writes in the Washington Post:
China disclosed the other day that its foreign exchange reserves had increased to about $2.4 trillion in 2009, up $453 billion for the year. These stupendous figures — and the likelihood that the country’s reserves will rise by a comparable amount this year — have become a financial, economic and geopolitical reality of surpassing significance. The significance is not, as many imagine, that China might suddenly “dump” the dollar and dethrone it as the world’s major international currency, undermining American economic power and prestige. Two-thirds or more of China’s reserves are estimated to be held in dollars. As an economic strategy, dumping the dollar would boomerang. It would amount to a declaration of economic war in which everyone — Chinese, Americans and many others — would lose.
…Look elsewhere for the significance of the huge foreign exchange reserves. For starters, they confirm China’s mercantilist trade policies. A country that practices mercantilism strives to increase exports at the expense of its trading partners. China has done this by keeping its currency, the renminbi (RMB), at an artificially low rate that gives its exports a competitive advantage on world markets. The resulting trade surpluses are huge — even last year’s, which were somewhat shrunken by the global slump.
