China threatens to trigger U.S. Dollar Crash
By Ambrose Evans-Pritchard
Last Updated: 9:54am BST 08/08/2007
The Chinese government has begun a concerted campaign of economic threats against the United
States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes
trade sanctions to force a yuan revaluation.
Two officials at leading Communist Party bodies have given interviews in recent days warning -
for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a
political weapon to counter pressure from the US Congress.
Described as China’s “nuclear option” in the state media, such action could trigger a dollar
crash at a time when the US currency is already breaking down through historic support levels.
It would also cause a spike in US bond yields, hammering the US housing market and perhaps
tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US
“China has accumulated a large sum of US dollars. Such a big sum, of which a considerable
portion is in US treasury bonds, contributes a great deal to maintaining the position of the
dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced
their dollar holdings"