If China looses faith, the dollar will collapse

[Partizan]

Interesting article from the FT.

FT.com / UK - If China loses faith, the dollar will collapse

Emerging economies such as China and Russia are calling for alternatives to the dollar as a reserve currency. The trigger is the US Federal Reserve's policy of expanding the money supply to prop up the banking system and its over-indebted households. Because the magnitude of the bad assets within the banking system and the excess leverage of its households are potentially huge, the Fed may be forced into printing dollars massively, which would eventually trigger high inflation or even hyperinflation and cause great damage to countries that hold dollar assets in their foreign exchange reserves.

what do you think? Will China dump the greenback?

[Pauli]

I've read a few articles of Andy Xie before and he knows what he is talking about. China will certainly lose faith if the printing presses lead to a serious devaluation of the dollar, as will the Japanese. If that happens, the dollar is a dead duck.

[Gimpanzee]

can China afford to let it collapse?

[ivnryn]

The problem is that if China decides to do that, they will destroy their own reserves.

They have to decide if selling at the current price is better than waiting and hoping for an improvement.

[Wakeupcall]

I have heard this from infinite sources in the past 6 months!

[Demotruk]

I have heard this from infinite sources in the past 6 months!

True, but it's becoming more and more apparent that China is in fact losing faith in the system, they are both buying gold steadily and using their political clout to get the IMF to sell it's gold (so they can buy more at a relatively cheap price).

[Oppenheimer]

I thought that they already moved to balance their reserves to more Euros a few years back, it was at that point that the dollar started its slide and then persisted due to other events since.

[Eorna]

Good point Demotruk, China is steadily buying up the gold, and has a thousand tonnes at the moment, althiugh sme say that it is actually closer to 2k. The dollar is going to weaken significantly in the coming years, you cannot print money and expect it to hold its value. China can't really stop it from collapsing, that is America's mismanagement coming home to roost, it can slowly diversify away, in a sublte manner so as not to spook the markets, while buying up mine, utilities, gold etc.

[Mazzy Maz]

A big issue here is the fact that oil is traded in dollars, thus keeping demand for dollars high as everyone needs them to buy oil. Iran have been threatening for years to set up an oil exchange that only used Euros.

[Dios]

A big issue here is the fact that oil is traded in dollars, thus keeping demand for dollars high as everyone needs them to buy oil. Iran have been threatening for years to set up an oil exchange that only used Euros.

Opened February 17th, 2008.