Web Letters: Will China Choke on US Dollars?

I can't believe that you would publish such a naïve and misleading article.

The reason the US dollar remains strong relative to China's Yuan is because China does not float its currency. It pegs it against the US dollar.

A large amount of the US dollars flowing into China are used to buy US debt, as shown in the table on the US Treasury link. This money is not locked away, and does not make the US dollar scarce.

The demand for $US debt keeps interest rates low, and effectively leads to increases in the money supply as consumers borrow more and more. The increase in money supply leads to asset price inflation such as the US housing bubble, and very high equity valuations (as more dollars chase the same amount of assets). It also results in a relatively weak $US. Have a look at a long-term $US index chart and you will see the obvious decline of the dolar over many years.

Take the time to check out growth in the $US money supply and you will see that it has grown at very high rates for many years now. US dollars are far from scarce.

In light of the above, the statement below is ludicrous: "and put it in their piggy banks instead of spending it. Once those dollars disappear into the piggy banks, there are fewer of them floating around. That makes them scarce, which makes the dollar more expensive."

Nicholas Von Hoffman should stick to writing about things he understands. This article reflects poorly on the credibility of your publication.

Andrew Kemp

Smoko, Vic., Australia