> Comments by China that it intends to move away from its reliance on the
> triggered a sharp drop in the Dow Jones Industrial Average and heightened
> worldwide fears about the U.S. currency's stability. Chinese Central Bank
> Director Xiu Jian said that his country is planning to shift much of its
> trillion national currency reserve from dollars to more stable currencies,
> as the euro or Canadian dollar. After these comments, the dollar fell to
> lows relative to other currencies -- the lowest ever against the euro, the
> lowest in a generation against the British pound, and the lowest in 57
> against the Canadian dollar.
> "The big issue on any currency is if its rate of depreciation is so fast
> that it
> scares away all capital, and the announcement that we heard from China
> sort of
> feeds those fears," said Larry Smith, chief investment officer at Third
> Global Investors.
> China is the world's largest investor in U.S. Treasury bonds and
> holding more U.S. debt than any country but Japan. Because China's
> currency is
> linked to the dollar, the country also maintains a massive reserve of the
> But this policy had already begun to shift at the time of Xiu's comments.
> has divested approximately 5 percent of its $400 billion holdings in the
> Treasury and established a $200 billion fund to help diversify its
> in equities and stocks around the world.
> "We will favor stronger currencies over weaker ones, and will readjust
> accordingly," said Cheng Siwei, vice chairman of China's National People's
> It is not just U.S. investors http://tinyurl.com/3pw5t2 who are concerned.
> Because the dollar's fluctuations have driven up the euro, exports in
> have fallen and sparked fears for the stability of that continent's
> economy. In
> a recent speech, French president Nicolas Sarkozy added his voice to those
> calling for the Bush administration to act to stabilize the currency.
> "The dollar cannot remain 'someone else's problem,' " Sarkozy said. "If we
> not careful, monetary disarray could morph into economic war. We would all
> its victims."