July 25, 2011
In its morning segment, Marketplace Radio told listeners that China’s response to the standoff over the debt ceiling may be to shift some of its dollar holdings into the euro and other currencies. It then said that this would be bad news for the U.S. economy.
Marketplace better tell President Obama about this. The official policy of the Obama administration is that it wants China to raise the value of its currency against the dollar. This would mean selling its dollar assets and instead buying the assets of other countries.
The reason for wanting the dollar to fall (i.e. the yuan to rise) is that it would reduce the trade deficit by making imports from China more expensive in the United States and making U.S. goods cheaper for people in the China. The Obama administration says this would be good for the U.S. economy; it would be interesting to hear why Marketplace Radio thinks it will be bad.
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