China has lost faith in the stability of the U.S. dollar and its first priority is to broaden the exchange rate for its currency from the dollar to a more flexible basket of currencies, a top Chinese economist said Wednesday at the World Economic Forum.
At a standing-room only session focusing on the world’s fastest-growing economy, Fan Gang, director of the National Economic Research Institute at the China Reform Foundation, said the issue for China isn’t whether to devalue the yuan but “to limit it from the U.S. dollar.”
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“The U.S. dollar is no longer – in our opinion is no longer – (seen) as a stable currency, and is devaluating all the time, and that’s putting troubles all the time,” Fan said, speaking in English.
“So the real issue is how to change the regime from a U.S. dollar pegging … to a more manageable … reference … say Euros, yen, dollars – those kind of more diversified systems,” he said.
With that kind of talk, it doesn’t appear the dollar will be making major upward headway any time soon. Which should help reduce America’s trade deficit. But if foreign investors reach a breaking point with the dollar and put the breaks on financing U.S. debt, it won’t be pretty for the economy.