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Wednesday, 08.08.2007
What will happen to the ruble, if China dumps the dollar?
Moscow/Beijing. Russian financial circles are following the looming conflict between the USA and China with great interest. According to a Beijing newspaper, if China was to sell some of its US government bonds, the dollar would collapse.
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In Beijing’s China Daily, the Chinese economist Hu Fan reflects on whether China could be forced to sell some of its US government bonds, and what the consequences of such a move might be.
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According to Hu Fan, China holds a total of $1.33 trillion (approx. ˆ1 trillion). “If the Chinese Central Bank were forced to sell dollars, this could trigger a massive devaluation of the dollar,” writes the economist from the Chinese Institute for Global Economy and Politics.
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Who is dependent on whom? USA on China or China on the USA?
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The article is a reaction to American calls for China to appreciate the yuan, which according to American estimates is undervalued by 25-40%. The American trade deficit with China ran to over $232 billion (ˆ170 billion) in 2006.
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According to American figures, 44% of US government bonds are held abroad.
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If China was forced to abruptly hike its exchange rate, it would have to sell some of its dollar reserves to compensate for resulting losses, argues the article in China Daily.
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The problem affects Russia fairly directly, because a sizeable part of the population still hold their savings in dollars. Revenues from oil and gas export are also paid in dollars.(mig/.rufo/Moskau)
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