Why Fareed Zakaria is wrong with repect to China

Written by: Shoaib Zaman

Why Fareed Zakaria is wrong about China
Political commentator Fareed Zakaria  shared his view on the Chinese reaction with respect to US downgrade on CNN's blog. Though he has caught the immediate reaction of the Chinese government correctly, his prognosis is wrong.

Though in the immediate to medium time-frame China and perhaps the entire world will keep purchasing US Dollars, that doesn't mean it will remain the norm forever.

China too is suffering, it has created an export economy and the country is aging. It is actually going the Japan way, deflation, just that the speed is too fast.

At the same time, the country is using the dollar to buy assets in Africa, and thus the process will bring down the amount of dollar holding. The second interesting or lets say worrying part would be that the ASEAN nations and China will be utilizing bilateral currency swap. Same thing goes for Russia and China. 

Such moves will not affect the appetite for US dollar over night, but will affect it in few years. And while Zakaria is correct that the only safe currency as of now is US Dollar and hence China will have to buy it, it also doesn't change that over a period China and other countries will learn the art of dealing in other currencies.

Second, as Martin wolf, associate editor and chief economics commentator at the Financial Times said in one of his columns, the two countries are interlinked to each other and US is just printing paper and passing it on while China is sending them cheap and tangible goods. US can any day tell the Chinese to go ahead and use the paper as they please. The end result is that it remains a paper, worth nothing.

The fact is that China's reserve will go useless, or as Marc Faber, Dollar will be like a toilet paper!

The reaction was more of a symbolic rhetoric, nothing to be taken seriously but China's actions of diversification and bilateral agreements should not be taken lightly.

If you would also like to contribute or ask us a question, then e-mail to money (at) oneindia (dot) co (dot) in. You can contact the writer at md (dot) shoaib (at) oneindia (dot) co (dot) in

GoodReturns.in DISCLAIMER: The views expressed in this article are the views of the author and do not reflect the views of our company. GoodReturns.in does not take any responsibility for any losses incurred by investors who take their cues from the above article

Read more about: economy, china, united states
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