June 26, 2009

China whines (again) about the dollar

Symbiotic relationships are a bitch. You hate the other party but you need them so much you just can't let go.

Sounds like most of the marriages I know.

China is still casting about for a new reserve currency, using the International Monetary Fund's Special Drawing Rights.

"To prevent the deficiencies in the main reserve currency, there's a need to create a new currency that's delinked from the economies of the issuers," the People's Bank of China said in a review of the economy in 2008 released on Friday.

The subtext is "We don't believe the US can balance it's budget and we believe they will monetize their debt by printing ever more currency. This will devalue our already large position in dollars and dollar denominated assets. We are therefore looking for another currency in which we can invest without the fear of depreciation".

Which is kinda dumb since China is effectively tied to the dollar as long as they have an export driven economy. So, good luck with the SDR's, bitches. Realpolitick aside, they do have a valid point. There is zero chance that we will monetize the debt, but there is a real chance we will continue to run structural deficits forever if the cut and spend crowd comes back into power.


Posted by mcblogger at June 26, 2009 02:42 PM

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