Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
Finally, on the issue of what would happen if China "dumped" its treasuries. To do this would require a buyer, there are none who can absorb the amount that China presently holds. Furthermore what would they pay for them with, dollars?

Euros, Swiss Francs, GBP, Yen, Australian Dollars.

And at whatever FXR the holders of those currencies wish to offer, because as long as the Chinese are holding THOSE exchange rate at a discount against the floating market rates, they will be creating renminbi to buy those currencies ... so the size of their foreign exchange reserves is not relevant to whether their exchange rate policy can succeed or not.

As long as they are not trying to defend an overvalued currency, the question of how much foreign exchange reserves they have on hand is moot ... any nation with its own currency can always depress its exchange rate by creating domestic currency to purchase foreign exchange.

Its not like they were buying the USD securities "as an investment in the securities" ... the purchase of the USD securities was a tool to depress the renminbi/USD exchange rate.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue Apr 29th, 2008 at 02:54:19 PM EST
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