China and the Dollar.
Concerns about the dollar and the largest owner and recipient of the dollar have been set to a higher level. China more and more often reports that they might drop their dollar reserves. If these signals are to be taken seriously or not you decide.
China has soon for 2 trillion USD currency reserves. This is a consequence of many years of trade surpluses and an economical oriented population. For years rumors have circulated that China wants to increase its EURO reserves and decrease its USD reserves.
Did you also now that a large part of the current stimulation plans are actually being financed by the East?
It cannot be denied that China and the US are in an awkward situation. Now you must be wondering why doesn’t China dump its USD reserves instead of piling up the US credit?
1. If China stops financing the US or dumps the currency then the value of their own reserves will deplet.
2. China is addicted to economic growth. The growth for 2009 is estimated to be 8.94%. This growth almost completly depends on export.
The consequences of a dollar fall brought about by the Chinese is much larger than a fall by other causes.
The FED has probably drawn this conclusion as well thats why they are printing astronomic amounts of dollars lately.
China is watching all recent happenings from the side line while focusing on its own power which has to be increased as they know that this century is their century.
Post Details
Posted on December 13, 2008
at 11:00 pm
Written / posted by: Simon
Filed under: Sharp Observations