If China Moves Away from Holding Dollars Then It Will be Doing What Bush-Obama Requested

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Tuesday, 15 October 2013 05:03

The Washington Post had an article reporting on a commentary from a Chinese government owned news outlet that implied the country might move away from holding dollars. The article should have pointed out that such a move would be consistent with the publicly stated demand of both the Bush and Obama administrations that China stop "manipulating" its currency.

The way that China would "manipulate" its currency (keep its price down against the dollar) is by buying up huge amounts of dollars. If it sold dollars then its currency would rise against the dollar. That would make Chinese imports more expensive for people living in the United States, causing us to buy less of them. It would make U.S. exports cheaper for people living in China, leading them to buy more U.S. exports.

This change could go far toward reducing the U.S. trade deficit, especially if other developing countries follow China's lead as they have in the past. The result would be millions of new jobs and also an important boost to wages. In other words, if China follows through on the path suggested in this article it would be good news for most of the country. Importers like Walmart and companies that have established production facilities in China, like General Electric, might be less pleased.