Forum FAQ

Preferences

Watched Topics

Watched Forums

Nuclear $$$'s

Shanghai Expat Forum Index » Community Discussion Forums » News and Opinion

Author

Message

shanghaiceltic

Board Royalty

Joined: Sep 20, 2005
Posts: 7588
Location: Perth WA
Status: Offline

Posted: Aug 08, 2007 - 08:08 AM
Post subject: Nuclear $$$'s

If China liquidates it's dollars then surely the fall in the value of the dollar will mean that it looses a lot of money as it bought them at a much higher price. Economics makes my head hurt...

China threatens 'nuclear option' of dollar sales

By Ambrose Evans-Pritchard
Last Updated: 6:00pm BST 07/08/2007

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.
advertisement

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added.

He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.

"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.

"China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.

The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo".

She said foreign control over 44pc of the US national debt had left America acutely vulnerable.

Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.

"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles," he said.

A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.

The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June.

Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".

Mr Paulson is a China expert from his days as head of Goldman Sachs. He has opted for a softer form of diplomacy, but appeared to win few concession from Beijing on a unscheduled trip to China last week aimed at calming the waters.

_________________
I have parrallel bars at home, one for gin and one for whiskey

hc
Post Roaster

Joined: Apr 04, 2007
Posts: 4545

Posted: Aug 08, 2007 - 08:40 AM

Well. Everybody saw it coming.

Cant blame China on trying to get rid of assets of decreasing value, even though, yes, as soon as they start selling the dollar will plunge even further...

Now, I would ask Ambrose to quote exactly what the two officials said.

"Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress."

Looks very sensationalist.

I can see millions of people regretting buying all the plastic toys and cheap clothes from the sweaty yellow men in black shoes and white socks that they love to hate.

This will get more and more interesting from here.

Write this down: we will very soon have "advancements" in the Taiwan situation.

Time has come.

_________________
Click here to read the latest retarded PM Natalie sent me. Let's make her lose face and FINALLY leave this site.

wolfy
Fire-eater

Joined: Sep 13, 2004
Posts: 2510

Posted: Aug 08, 2007 - 09:15 AM

They won’t sell their dollars because it would be effectively throwing all their savings down the drain and the last thing China needs is a US recession.

Nothing to worry about. Empty vessels make the most noise….

_________________
Good old English spirit! http://www.youtube.com/watch?v=7MG27BKwjaI

underh20
Shanghai Royalty

Joined: Sep 27, 2006
Posts: 9647
Location: EOA Seminar

Posted: Aug 08, 2007 - 09:31 AM

I can't see China bowing to external pressure and allowing the yuan to rise overnight to what some say is the real value of about 5 RMB per US$. Wouldn't doing that be a source of significant social unrest -- something that China usually tries to avoid at all costs?

Would China sell all their dollars if forced into an uncomfortable position? Why not? They could easily save in euros. Would a Chinese dolar sell-off really result in a US recession?

Here's an interesting article in today's China Daily that seems to repeat the same sense of possible retaliation mentioned in Celtic's article:

http://www.chinadaily.com.cn/bizchina/2007-08/07/content_6015749.htm

Quote:

Long-term RMB reform benefits China and US
By He Fan (China Daily)
Updated: 2007-08-07 17:40

The author He Fan is a researcher with the Institute of World Economics and Politics at the China Academy of Social Sciences

... snipped ...

When the yuan is stable, the US has a more important advantage.

Thanks to the trade surplus, China has accumulated a large sum of US dollars and its world largest foreign exchange reserve is mostly in US dollars. Such a big sum, a considerable portion of which is in the form of US treasury bonds, contributes a great deal to maintaining the position of the US dollar as an international currency.

Russia, Switzerland and several other countries have restructured their foreign exchange reserve and reduced the US dollars they hold. China is unlikely to follow suit as long as yuan's exchange rate is stable against the US dollar.

The Chinese central bank will be forced to sell US dollars once the renminbi appreciates dramatically, which might lead to a mass depreciation of the US dollar against other currencies.

... snipped ...

Human Cesspool wrote:

Write this down: we will very soon have "advancements" in the Taiwan situation.

Coming from our resident graduate of Bilge Rat University, laughable.

_________________
بارك الله ، بارك الله

phiota

Raver

Joined: Nov 01, 2005
Posts: 467

Status: Offline

Posted: Aug 10, 2007 - 09:29 AM

Seems like a good time to head to Hong Kong to buy Gold Very Happy

shanghaijack

Lurker

Joined: July 12, 2007
Posts: 22

Status: Offline

Posted: Aug 16, 2007 - 11:30 PM

If china sold all its dollars and bought euros instead, wouldn't the us be laughing as european exports become uncompetitive and a further plunging dollar helps the states to get its bop deficit under control?

wolfy
Fire-eater

Joined: Sep 13, 2004
Posts: 2510

Posted: Aug 17, 2007 - 04:30 PM

Anyway the "threat" was refuted by the central bank and the goverernment. More bullcrap from the Daily Telegraph again I'm afraid...

_________________
Good old English spirit! http://www.youtube.com/watch?v=7MG27BKwjaI

lodi

Squeeker

Joined: Jan 05, 2004
Posts: 14

Status: Offline

Posted: Aug 20, 2007 - 03:35 PM

But do we realize how much 1.3 trillion is? Hard to convert that into real assets - they could buy up a few multinationals with that if they wanted to.