Bacchanalian
Stimulus
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Posted - 2008.02.02 01:02:00 -
[1]
 Originally by: Dragy
i can't wait till China sells their 800bil dollar deposit  And change it for euro. Then dollar will fall like never before
Won't happen. China's an export economy at the moment (50% savings rate, just as an indication of how export-based their economy is) and a very substantial portion of their exports are sold to US consumers. Weakening the US dollar will lower the demand for China's exports as the prices for them raise in dollar terms. China is looking to expand its economy and grow right now, not to put itself into recession by driving the US into recession.
China's national savings are in large part held in dollars. So for them to ruin the dollar, they ruin their own national savings in the process. You can't offload $1.4 trillion all in one place, and by the time the world economy catches wind of the fact that China is looking to do so the dollar will crash so fast your head will spin. Consider that when a random Communist Party member Cheng Siwei suggested that it might make sense for China to at some point consider diversifying their dollar investments in a public speech, it only took a few hours after that for the dollar to hit what was then its lowest point to date against the Euro and several other currencies. Now imagine what happens when word gets out that China has offloaded a few billion in dollars.
For as foolish as the US government has been to allow the situation to reach this point, the Chinese government has been equally blind to allow it to get this bad. They aren't actively going out to buy dollars as much as it may seem, either. When you buy a Chinese import, the percentage of that purchase that goes back to the producer in China must then be immediately taken to the local banks and exchanged for Chinese currency. The banks must exchange the dollars with the People's Bank of China (central government bank) for Chinese currency at the going rates, and the PBOC stashes all those dollars away. Figure that happens at the rate of about $1 billion/day and you get an idea of how China is amassing dollars so rapidly.
In any case, long story short, it's as much in China's interests as it is in ours to maintain a stable price for the dollar. Their economy and moreover their government depends on it.
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