Tags: Warner | dollar | China | currency

Telegraph's Warner: King Dollar Could Derail China's Economic Growth

By    |   Wednesday, 05 November 2014 02:09 PM

A resurging U.S. dollar might cripple Chinese economic growth, with profound global implications, according to Jeremy Warner, associate editor of The Daily Telegraph.

In recent decades when the greenback has surged in strength against other currencies, it has often resulted in global currency instability, Warner explained.

"Unless it acts quickly to decouple, the main 'victim' of a resurgent dollar this time around will likely be China, which is effectively pegged to the greenback and whose exports are highly dependent on a relatively weak currency," he predicted.

Warner noted the American economy is stronger now than just about anywhere else in the developed world, and the Federal Reserve has ended quantitative easing, even as other nations are still pursuing currency-cheapening monetary policies.

"The U.S. economy is driven overwhelmingly by internal, domestic demand. Exports are not so important to its fortunes. . . . The greenback will need to go a lot higher before U.S. policymakers hit the panic button."

Warner noted some experts believe China has already fallen below its targeted GDP growth rate of 7.5 percent.

"If these more pessimistic estimates for the Chinese economy are even halfway true, then any significant strengthening in the U.S. dollar would virtually guarantee a hard landing."

Warner said Chinese authorities have already quietly stopped "attempting to support the renminbi/dollar peg with asset purchases."

"Decoupling would be a huge step for a country that has built its economic success in lockstep with the dollar. However, in a world where demand is increasingly hard to find, it may yet come to that," he noted.

Chronic grumbling about the U.S. dollar's status as the world's reserve currency does not amount to much that is meaningful, according to Time's Michael Schuman.

"The dollar index, which measures the greenback's value vs. a basket of other currencies, has reached a four-year high. Those policymakers who bitterly criticize the dollar show little actual interest in dumping it. The amount of U.S. Treasury securities held by China stands at a whopping $1.27 trillion," Schuman said.

In fact, some economists believe the right conditions are in place for the U.S. dollar rally to last for several years. "All hail the mighty greenback," Schuman declared.

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A resurging U.S. dollar might cripple Chinese economic growth, with profound global implications, according to Jeremy Warner, associate editor of The Daily Telegraph.
Warner, dollar, China, currency
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2014-09-05
Wednesday, 05 November 2014 02:09 PM
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