China threatens to trigger U.S. Dollar Crash

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

bonds.

“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"

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