China threatens the nuclear option
AFP/Getty Images For the U.S. economy, it just might be the economic equivalent of a nuclear holocaust. China decides to dump the over $1 trillion in U.S. foreign reserves it holds—some 44 percent of the total U.S. national debt. The already-stumbling U.S. housing market is beaten into collapse. And the euro overtakes the dollar as the world’s reserve currency of choice as America sinks into ...
AFP/Getty Images
For the U.S. economy, it just might be the economic equivalent of a nuclear holocaust. China decides to dump the over $1 trillion in U.S. foreign reserves it holds—some 44 percent of the total U.S. national debt. The already-stumbling U.S. housing market is beaten into collapse. And the euro overtakes the dollar as the world’s reserve currency of choice as America sinks into a deep recession.
It’s not always easy to read the tea leaves in Beijing. But serious analysts say that in recent days, China has quietly threatened that this “nuclear option” is very much on the table should the U.S. government attempt to force a revaluation of the yuan via trade sanctions. It started last week, when Xia Bin, chief of the state Development Research Center (an institution with cabinet rank) said that Beijing should use its U.S. treasury bonds as a “bargaining chip” in negotiations with Washington. Then on Wednesday, He Fan of the Chinese Academy of Social Sciences said this:
China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings. China is unlikely to follow suit as long as the yuan’s exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar.”
That’s a not-so-veiled threat that, if carried out, would have catastrophic consequences. Watch this space for more.
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