China's dollar dilemma
The US dollar trap is becoming more of a problem for China as they try and figure out how to escape. They currently own more than USD1 trillion of US debt and are not sure if the currency will keep its value as America borrows more than it might be able to pay back. The other side of the trap remains if they start to dump Treasury bills, because such a large sell off would decrease the exchange rate of the dollar and China would lose billions.
For now, China keeps buying more US debt to maintain its earnings from exports. Without the third largest economy buying the US' debt, president Obama would not be able to afford the costly new programs. In return for their purchases, China wants to slowly put rest to the dollar as the global reserve currency. Their hope is that they will become the world's financial hub by 2020 and that the yuan will become the new world reserve currency.
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