A Dollar Collapse Will Hurt China
Letter to the Editor

Andy Xie's suggestion that an Asian loss of faith in the US dollar could soon lead to a dollar collapse overlooks two basic considerations ("If China loses faith the dollar will collapse", Comment, May 5).

The first is that for the dollar to collapse, it would need to do so against the euro and the Japanese yen, the world's two other major international reserve currencies. However, the likelihood of a dollar collapse against the euro would appear to be remote.

As the International Monetary Fund recently reminded us, the European banks are more than likely in worse shape than those in the US, while any substantial appreciation of the euro would only make it more difficult for Ireland and the eurozone's Mediterranean member countries, which are all already experiencing deep recessions, to cope with the discipline of the euro.

It is hardly in China's economic interest for the dollar to collapse.

The likelihood of the dollar collapsing against the Japanese yen would appear to be even more remote given Japan's horrendously poor public finances and the fact that a stronger yen would only add to the deflationary pressure already in evidence on a rapidly contracting Japanese economy.

The second consideration overlooked by Mr. Xie is that it is hardly in China's economic interest for the dollar to collapse.

This is not simply because of the resulting losses on China's enormous US dollar international reserve holdings.

Rather, it is because any substantial weakening in the US dollar would be associated with a corresponding strengthening in the Chinese renmimbi, which would seriously undermine China's export-led economic growth strategy.

Desmond Lachman is a resident fellow at AEI.

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Desmond
Lachman

What's new on AEI

AEI Election Watch 2014: What will happen and why it matters
image A nation divided by marriage
image Teaching reform
image Socialist party pushing $20 minimum wage defends $13-an-hour job listing
AEI on Facebook
Events Calendar
  • 20
    MON
  • 21
    TUE
  • 22
    WED
  • 23
    THU
  • 24
    FRI
Monday, October 20, 2014 | 2:00 p.m. – 3:30 p.m.
Warfare beneath the waves: The undersea domain in Asia

We welcome you to join us for a panel discussion of the undersea military competition occurring in Asia and what it means for the United States and its allies.

Tuesday, October 21, 2014 | 8:30 a.m. – 10:00 a.m.
AEI Election Watch 2014: What will happen and why it matters

AEI’s Election Watch is back! Please join us for two sessions of the longest-running election program in Washington, DC. 

Wednesday, October 22, 2014 | 1:00 p.m. – 2:30 p.m.
What now for the Common Core?

We welcome you to join us at AEI for a discussion of what’s next for the Common Core.

Thursday, October 23, 2014 | 10:00 a.m. – 11:00 a.m.
Brazil’s presidential election: Real challenges, real choices

Please join AEI for a discussion examining each candidate’s platform and prospects for victory and the impact that a possible shift toward free-market policies in Brazil might have on South America as a whole.

No events scheduled this day.
No events scheduled today.
No events scheduled this day.
No events scheduled this day.