Monday, April 13, 2009

Danger... danger... China.... China... the sky is falling!!!

Is China Threatening to Stop "Manipulating" Its Currency?

The NYT reports that China has been buying up fewer dollars in recent months to hold as reserves. It suggests that this may be due to growing concern about the potential loss in value on its dollar holdings.

It is worth noting that China must buy up dollars in order to keep down the value of its currency against the dollar. China has maintained a managed exchange rate where the value of the yuan is below the market rate. This reduces the cost of China's imports to people in the United States. This managed exchange rate is exactly what the U.S. government has complained about for years as currency "manipulation."

If China decided to stop buying up dollars for whatever reason, then it would mean that China's currency would rise against the dollar. Ostensibly, this is what U.S. government wants to see happen. It is not something that should provoke fear.

Posted via web from jimnichols's posterous

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