China to Dump US Dollar as Confidence in Local Market Grows


A dear reader:

“To the average American, nothing much has changed in the financial world…

“According to ‘Business News’ on PBS, everything is actually OK – there is nothing to worry about. In fact, during the middle of 2008, all problems will be solved. But when will the Chinese ever dump their US treasury debts?”

A good question: when will the Asians get tired of funding America’s US$800 billion annual current account deficit? Of course, we don’t know the answer. By the evidence, they should have already done so.

But the Asians bought US dollar investments for two reasons:

First, because they were safe. They were a good garage in which to park their ‘surplus savings.’ They thought they wouldn’t have to worry about them.

Secondly, they put them in dollars in order to hold the dollar up. As long as the dollar stayed up, Americans could continue to buy beaucoup de stuff from Asian suppliers.

Now, both those reasons are beginning to look a little “so 2006”. The dollar is going down anyway…and their US dollar investments no longer look so safe. Plus, Asians are becoming more confident about their own prospects. Their own financial instruments are becoming more sophisticated. The rate of return on Asian investments is much higher, of course, but Asians are also beginning to see that they can safely invest in their own economies, their own companies, and their own financial instruments.

When will they dump US dollar financial instruments? Sooner or later is our answer.

Bill Bonner
The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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David Hannaford
9 years 20 days ago
As the $US falls faster it does not seem sensible to park money in US treasury bonds, but the Chinese must spend their dollars, so they will probably choose asset-backed shares instead. Recent article ( 2007-09-24 16:23:45 ) BEIJING, Sept. 24 (Xinhua) — About 35 billion yuan of ten-year special treasury bonds were released on Monday, the second batch of a total 200 billion yuan in treasury bonds to be made available to the general public. The Chinese Ministry of Finance launched the first batch of 15-year special treasury bonds valuing 31.97 billion yuan on Sept. 18. The ministry… Read more »
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