Monday, November 08, 2004

Falling dollar

The Financial Times is saying that China is selling dollars and has signaled that it will no longer keep its currency artificially low against the dollar. This is was the WaPo editorial said was desirable from the U.S. point of view since Americans need to stop buying and start saving. Americans buy cheap Asian goods in huge quantities, so an incraese in the cost of these goods can result in a decrease in the "savings deficit" as people buy less. The increase in the value of the renminbi (Chinese "People's Currency) will have this effect. The Financial Times, unlike the WaPo editors, does not see this as a good thing. They say there are signs that foreign government are becoming disinchanted with investments in the U.S. Although the WaPo editorial makes the optimistic assumption that Americans will take up the slack, there's no sign of this optimism in the FT account. The FT doesn't come right out and say it, but it seems to imply that what could happen is what the WaPo editorial was seeking to avoid: a crash. Here's the FT link: Dollar expected to fall amid China's rumoured selling, By Steve Johnson in London and Andrew Balls in Washington
Published: November 7 2004

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