If China loses faith in the dollar, the American national currency will fall, says The Financial Times. And it will happen as soon as the USA launch the printing machine to patch up the holes in the budget. However, the edition suggests its own way – for example, to sell the country’s “family silverware”, and then the faith of the Chinese will not be lost so quickly.
Moscow. May 5. The status of the American dollar rests on just two pillars – the belief of China in the power and good faith of America and “petrodollar” accounts of Persian Gulf countries that need the US military help, says The Financial Times. And as soon as one of these pillars refuses to carry the load on its back, the “greenbacks” will draw to a close.
Developing economies, such as China and Russia, are for the alternative to dollar as a reserve currency. The US Federal Reserve System (FRS) has to increase the amount of money in the economy, and sooner or later it will have to launch the printing machine, as the amount of “toxic” bank assets still has not been counted precisely, but it is clear that funds will be required again. If money has to be printed, it may lead to hyperinflation and do a lot of damage to the countries that keep currency reserves in dollars.
Talks about an alternative to the dollar reflect dissatisfaction with America among the developing countries which saved about $10 bln. in currency reserves, mainly in dollar assets. If any other country was in US place, it would need the help of Paris Club to conduct negotiations with creditors about its monetary policy, who would demand to protect their interests. But the situation in the USA is unique: the country borrows in its own currency, and the dollar is the main reserve currency of the world. So the USA can ignore the creditors’ problems at the moment without fear about the collapse of dollar.
As a result, US current policy and, consequently, the global stagflation will compel China to deregulate its currency and create a unified, independent and market financial system. The American policy pushes China to develop an alternative financial system. Once China will understand that it has to become independent from the dollar. The stagflation will make China accelerate the reforms. When it happens, the dollar will fall, predicts the edition.
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