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ARTICLE: “Currency Reserves Held by Beijing Continue to Soar,” by Andrew Browne, Wall Street Journal, 16 January 2006, p. A3.
Remember when we assumed that all those dollars held by the Japanese gave them incredible power over the U.S. economy? Well, the Chinese are on the verge of surpassing the Japanese in reserve holdings of U.S. dollars. China currently holds about $820b, and the Japanese hold almost $850b. China is expected to soon become the first nation to hold $1trillion in U.S. dollars in its reserve coffers.
China has announced a desire to diversify its reserves with more euros and yen, but no one expects a dumping of the dollar by Beijing any time soon. With that level of holdings, any such sale would hurt China far more than the U.S. by rapidly depleting the value of its remaining holdings. When you hold a trillion dollars, it gets pretty hard to find anyone to buy them rapidly, yes?
This is the essence of mutually-assured destruction in the age of globalization.
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