China’s Dollar Problem

Chinese leaders recognize that their hoard of dollars is a problem, and they are right to worry: while a dollar crisis is not around the corner, it is certainly a huge risk over the next five to 10 years. But if China does not want to be left holding a $4 trillion bag, it must take the lead on scaling back global imbalances.

CAMBRIDGE – When will China finally realize that it cannot accumulate dollars forever? It already has more than $2 trillion. Do the Chinese really want to be sitting on $4 trillion in another five to 10 years? With the United States government staring at the long-term costs of the financial bailout, as well as inexorably rising entitlement costs, shouldn’t the Chinese worry about a repeat of Europe’s experience from the 1970’s?

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