China's $2.4 Trillion Stash

By Samuelson, Robert J. | Newsweek, February 1, 2010 | Go to article overview

China's $2.4 Trillion Stash


Samuelson, Robert J., Newsweek


Byline: Robert J. Samuelson

Why the RMB won't replace the dollar.

China disclosed the other day that its foreign-exchange reserves had increased to about $2.4 trillion in 2009, a gain of $453 billion for the year. These stupendous figures--and the likelihood that the country's foreign-exchange reserves will rise by a comparable amount this year--have now become a financial, economic, and geopolitical reality of surpassing significance. The significance is not, as many imagine, that China might suddenly "dump" its dollars and dethrone the dollar as the world's major international currency, undermining American economic power and prestige. Two thirds or more of China's reserves are estimated to be held in dollars. As an economic strategy, dumping the dollar would boomerang. It would amount to a declaration of economic war in which everyone--Chinese, Americans, and many others--would lose.

Consider what would happen, hypothetically. China would first sell securities in which its dollars are invested. That would include an estimated $800 billion in U.S. Treasury bonds and securities, plus billions in American stocks and corporate bonds. After unloading the securities and collecting dollars, it would sell the dollars on foreign-exchange markets for other currencies: the euro, the Japanese yen, and who knows what else.

The massive disgorging of dollars could trigger another global economic collapse. As China's selling became known (as it would), other foreign and American investors might jump on the bandwagon, abandoning dollar securities and shifting currencies. If panic ensued, markets would fall sharply. Banks and investors would see their capital and wealth erode. The resumption of the global recession, even the onset of a depression, would shrink foreign markets for China's exports (in 2009, its exports fell 16 percent). To protect jobs, other countries might impose quotas or tariffs on Chinese imports.

Why would China do this to itself? The answer: it wouldn't.

The significance of the huge foreign-exchange reserves lies elsewhere. First, they measure China's mercantilist trade policies. A country that practices mercantilism strives to increase exports at the expense of its trading partners. China has done this by keeping its currency, the renminbi (RMB), at an artificially low rate that gives its exports a competitive advantage on world markets. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • A full archive of books and articles related to this one
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

China's $2.4 Trillion Stash
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

    Already a member? Log in now.