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Thursday, December 13, 2007

More Bad News on the US Dollar

A story about how Iran no longer accepts US dollars for its oil -- and how Russia may do the same -- also dropped this little gem ...

In early 2007, China made the final decision to get rid of a sizeable share of U.S. dollars in its state reserves. As of now, the dollar part of the Chinese state reserves amounts to $800 billion, mainly in U.S. Department of Finance bonds. This year, China is expected to hold $1 trillion worth of U.S. government bonds. Even if it does not undermine the dollar's standing as the principal holding of central banks, China's new policy will shift the balance of the country's foreign-exchange reserves in favor of the currencies and bonds of neighboring countries and Europe. Analysts forecast a 15% decrease in China's dollar denominated reserves, while 1% of China's reserves amounts to $14.5 billion.

UPDATE: Yuan Rises to Highest Since Peg Ended on Final Day of China-Paulson Talks The yuan rose to the highest since a fixed exchange rate to the dollar ended in 2005 after Chinese officials told U.S. Treasury Secretary Henry Paulson they support currency appreciation as long as it isn't excessive. (Bloomberg)


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