Jasper Smith

Commentary on politics, economics, culture and sports.

Dollar doldrums

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With respect to the falling dollar, one hears that it could get a lot worse very quickly, and there is dark talk of a sudden plunge, or speculation that “the Chinese might decide to dump US holdings.” What I want to know is, if, by “Chinese” one is referring to the government of China, exactly why would they Beijing want to take this course of action?

Wouldn’t dumping dollar assets just put yet more, enormous downward pressure on the greenback, thereby making Chinese exports more costly to American consumers? Last time I heard, they’ve got a lot of mouths to feed, and a very restive population; the last thing they need is massive layoffs. Here’s the point: the Chinese government is, um, a government. Why does a sovereign government care if its holdings of a particular financial asset are worth less? It has these things called “printing presses,” after all. And moreoever, the government of China is not saving up for a downpayment on a house, or trying to build a nest egg for retirement, or anticipating a costly wedding down the road. Governments don’t need to save, or build up portfolios, in the same manner as individuals.

I’m not saying people making such claims about the dumping of US bonds by the Chinese are wrong, mind you. I just don’t understand the logic, and I wonder if someone has an explanation.

Obviously private sector Chinese actors are dumping dollar-denominated assets just like other folks around the world, or else the dollar wouldn’t be dropping. I’m just wondering why they government in Beijing might want to do this. Seems to me a risky move for little (or no?) gain.

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Written by Jasper

November 8, 2007 at 10:43 pm

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