Jason has a post (@5:38 AM!) Delawareliberal: China's Central Bank: Countries should rely less on dollar
(I posted a redacted version of this post in the comments there)
The post makes no sense. The Chinese are attempting to diversify their holdings as a hedge against fluctuations. The Chinese hold a great deal of currency as well as bonds. So much so that they're inextricably linked to us. (The old saying is that if you owe the bank $1,000 they own you. If you owe them $1,000,000 you own the bank)
The US dollar isn't in danger of collapsing. That the dollar is showing downward pressure isn't necessarily a bad thing either. It makes our exports cheaper.
China is looking at major problems with their banking system and this may be related. As part of the WTO they have to open their books to auditors which analysts predict will show major problems. If they are correct and China has been robbing Peter to pay Paul we would be very happy if they had fewer US backed holdings. If their banks were uncertifiable and downgraded the Chinese bonds to junk status we'd see them unload a great deal of those holding for other hard currencies or to pay down debt. That would flood the global market with either dollars, yen, euros as well as debt instruments. Much of it would be snapped up at a deep discount by the Middle East and Europe with a little bit going to the rest of the Pacific rim. That flooding, however, would lead to a "correction" in the market. How much is difficult to speculate. It would be a brief drop but not an insignificant one.
This is a potential problem but not a catastrophic one. Think of the immense damage the 9/11 attacks did. Some very big hitters in the financial markets went under that day. Cantor-Fitzgerald among them. The damage was in the billions. The currency issue with China is small potatoes by comparison.
NB: We heard the same argument when OPEC said they were moving to Euros.
(I posted a redacted version of this post in the comments there)
The post makes no sense. The Chinese are attempting to diversify their holdings as a hedge against fluctuations. The Chinese hold a great deal of currency as well as bonds. So much so that they're inextricably linked to us. (The old saying is that if you owe the bank $1,000 they own you. If you owe them $1,000,000 you own the bank)
The US dollar isn't in danger of collapsing. That the dollar is showing downward pressure isn't necessarily a bad thing either. It makes our exports cheaper.
China is looking at major problems with their banking system and this may be related. As part of the WTO they have to open their books to auditors which analysts predict will show major problems. If they are correct and China has been robbing Peter to pay Paul we would be very happy if they had fewer US backed holdings. If their banks were uncertifiable and downgraded the Chinese bonds to junk status we'd see them unload a great deal of those holding for other hard currencies or to pay down debt. That would flood the global market with either dollars, yen, euros as well as debt instruments. Much of it would be snapped up at a deep discount by the Middle East and Europe with a little bit going to the rest of the Pacific rim. That flooding, however, would lead to a "correction" in the market. How much is difficult to speculate. It would be a brief drop but not an insignificant one.
This is a potential problem but not a catastrophic one. Think of the immense damage the 9/11 attacks did. Some very big hitters in the financial markets went under that day. Cantor-Fitzgerald among them. The damage was in the billions. The currency issue with China is small potatoes by comparison.
NB: We heard the same argument when OPEC said they were moving to Euros.
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