China Will Not Sell Their Dollars, imo. Japan is Unlikely
to do so either. Let me explain.
The economic benefit of China's official peg, and Japan's unofficial peg, have already been derived by the industries those currency operations intend to aid. In other words, Japan, for example, has always had the option to either print Yen and buy dollars and treasuries, or, print Yen and simply give the Yen to its exporters. Roughly, the effect is the same. Remember, all they are doing is printing yen, and using the proceeds to in effect give their own companies a subsidy. That is the entire purpose of the ongoing operation. So too, wioth China.
So why wouldn't Japan sell their dollars in order "not to lose the value" of their dollar position? It seems so "obvious" that they would be afraid of "losing" right?
Since they ALREADY gained from printing Yen and buying dollars, they would really only have something to lose by selling the dollars, and thereby crashing the dollar. They are trapped, therefore.
However, there's one big difference here between Japan and China. If the dollar were to begin tumbling on its own, the tumbling value of Japan's dollar reserves would become a political issue. And since Japan has a Democracy, politicians will "care" to the extent it makes the govt. appear as the worst bankers of all time.
But no such political problem exists with China.
Bottom line: China will not be selling their dollars, or T-bonds, as part of any program. Even if the dollar should take a dump all on its own. There would be nothing to gain for China.
LP |
