johnnymk

http://money.cnn.com/news/newsfeeds/...3-20815190.htm

WASHINGTON, Nov. 7, 2007 (Thomson Financial delivered by Newstex) -- After another day in which Chinese officials seemed to hint that China might be considering selling off the dollar, US economists discounted the threat, given that it would sink the value of China's vast dollar holdings.

Cheng Siwei, a senior government official, said Wednesday China should strike a 'balance' between the depreciating dollar and appreciating euro, while Xu Jian, vice head of the People's Bank of China's Communist Party school, said the US dollar's status as a global currency is 'shaky.'

But according to US experts, these comments and others like it that surface now and again in China should be taken like tequila -- with salt.

US Treasury Secretary Henry Paulson, after similar comments came out of China earlier this year, has said none of the senior Chinese leaders he meets with talk about selling China's dollar reserves.

Benjamin Reitzes of BMO Financial Group (NYSE:BMO) says China holds between 60 and 70 pct of its foreign exchange reserves in dollars, and is thus unlikely to begin selling.

'If China were to start a fire sale of its US$-assets, it would face prohibitive losses,' Reitzes wrote today. 'A more likely scenario would be for China to stop accumulating US dollars, not an outright sale.'He also predicted that further declines in the greenback could lead to a new accord aimed at shoring up the struggling currency.

Marc Chandler of Brown Brothers Harriman is even more dismissive, saying comments made today 'most likely do not reflect policy,' in part because of who made them.

'Cheng Siwei who talked about what the PBOC should do with reserves has in the past made errant remarks that have no bearing on policy,' Chandler said, citing past remarks in which Cheng has proposed that China stop buying US treasuries.

'It is clear from this commentary record, he is no fan of the US
dollar,' Cheng said.

Chandler adds that a sharp dollar decline that could be sparked by a Chinese selloff would make it harder for China to allow the yuan to appreciate in value gradually, another reason why Chinese policymakers are 'more active defenders than the US' of the strong dollar policy.

Carl Weinberg of High Frequency Economics agreed that Cheng's comments will mean nothing more than a temporary flutter in the market.

'This may be an opportunity for traders, since Cheng has no standing whatsoever in the conduct of monetary or currency policy,' Weinberg wrote today.

'So sit tight on your yuan, but look for the dollar to come back on the key currencies today as calmer heads prevail in the markets.'
Near the end of the trading day, however, it seemed the comments from Chinese officials were still reverberating through the market. With less than an hour to go in the trading day, the dollar was still down to an all-time low against major currencies, and euro was above 1.46 usd to the euro.

zippyjuan

They may at some point decide to buy fewer dollar backed securities, but it is doubtful they would do a mass dump of ones they already have. A strong dollar is good for China- it makes their prices cheaper for US consumers relative to domestically (US) produced products. The falling dollar is presently helping close a bit of the trade deficit by making imports more expensive and exports cheaper for other countries to buy- trade is the strongest sector of our economy right now. Oil imports are priced in dollars already so currency fluxuations do not impact our demand and expensed for fuel- that is more set by world wide supply and demand. So a weaker dollar is not necessariliy a bad thing.

__________________
I add new pictures to my photo gallery pretty regularly. You can see them here if you are interested: http://www.pbase.com/jeffryz