Dollar’s Fate in Our Hands, Not China’s

Derek Scissors / May 14, 2009

Today’s New York Times op-ed page features two columns on the dollar and the Chinese currency, the RMB. Nouriel Roubini concentrates on American policy. Victor Gao gives a somewhat depressing lesson in personal Chinese economic history.

It’s a better discussion than standard claims the PRC is trying to ruin the dollar. Gao correctly suggests that, cheap talk aside, China is a primary supporter of the dollar. As Roubini points out, it’s the U.S. that’s ruining the dollar.

There’s no official figure on this, which is important, but Gao puts the PRC’s dollar holdings at about $1.5 trillion. Brad Setser agrees. Individual Chinese may be less enthralled, but the Chinese government hasn’t lost the gleam in its eye for dollar assets. Beijing’s continued willingness to accumulate dollars and use them in ever growing trade and investment is a pillar of the dollar system. (more…)