"China may be preparing to cut its foreign exchange reserves by about two-thirds, down to about $1 trillion from its current $3.04 trillion level, according to Chinese news service Xinhua.
Why? China simply has too much money, according to Zhou Xiaochuan, the head of the People’s Bank of China. “Foreign-exchange reserves have exceeded the reasonable level that our country actually needs,” he recently said.
This would have severe consequences, mostly for the American people.
Because the U.S. has racked up so much debt among foreign creditors like China, we have become increasingly vulnerable to their whims. China dumping a significant portion of its U.S. treasuries could spark a run on the dollar, uprooting it as the world’s reserve currency. How?
It would cause a rush to the exits on the treasuries market, robbing the ability of the U.S. to borrow from other creditors, who would not want to risk having the value of their assets devalued. Suddenly, a frenzy would occur by financial institutions to cash in dollars for something — anything — of value."
[Netright Daily]
No comments:
Post a Comment