Meltdown of U.S. Dollar Underway as China Dumps the Currency

Sunday, April 13, 2008 by: David Gutierrez | Key concepts: china, U.S. dollar and investors
(NaturalNews) Comments by China that it intends to move away from its
reliance on the dollar triggered a sharp drop in the Dow Jones
Industrial Average and heightened worldwide fears about the U.S.
currency's stability. Chinese Central Bank Vice Director Xiu Jian said
that his country is planning to shift much of its $1.4 trillion
national currency reserve from dollars to more stable currencies, such
as the euro or Canadian dollar. After these comments, the dollar fell
to record 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 years 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 Wave Global Investors.

China is the world's largest
investor in U.S. Treasury bonds and securities, 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 currency.

But
this policy had already begun to shift at the time of Xiu's comments.
China has divested approximately 5 percent of its $400 billion holdings
in the U.S. Treasury and established a $200 billion fund to help
diversify its investments 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 Congress.

It is not just U.S. investors who are concerned. Because the dollar's fluctuations have driven up the
euro, exports in Europe 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 are not
careful, monetary disarray could morph into economic war. We would all
be its victims."