In fact, China may have to increase its exposure to the dollar, according to the comments of Brad Setser
of the Council of Foreign Relations: "In my mind, so long as China
resists more rapid appreciation of the renminbi versus the dollar, it’s
rather difficult for China to diversify in any meaningful way against
the dollar. If China really started to diversify away from the dollar, I
think it’s a big enough player that it would put downward additional
pressure on the dollar."
And additional downard pressure on the USD should be what China is
trying to avoid. China, being the largest exporter to the U.S. does not
want to see appreciation of its currency against the USD, as that would
make its goods more expensive (and therefore less competitive) in
America.
In fact, Setser goes on to say that in order to prevent the USD from
sliding even further downward against the RMB, China would have to not
only retain its present stock of USD, but in fact buy even more.
Read more: Can China Dump the Dollar?
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