Chinese central banker says dollar must weaken

By Li Yanping and Justin Carrigan
Bloomberg News
Thursday, December 17, 2009

http://www.bloomberg.com/apps/news?pid=20601080&sid=aLHD8QY9fQsU

BEIJING -- Chinese central banker Zhu Min said that the dollar is set to weaken further and it will become more difficult for nations to buy U.S. Treasuries.

"When the U.S. has to fund its deficit through the combination of issuing more Treasuries and printing more dollars, it is inevitable that the dollar will continue to weaken," Deputy Governor Zhu said at a forum in Beijing today.

China, the biggest foreign holder of Treasuries with $798.9 billion of the securities, expressed concern this year at the safety of its dollar assets and central bank Governor Zhou Xiaochuan called for moves toward an alternative global currency. Zhu's comments, which he said were a personal view, focused on the twin U.S. deficits, fiscal and current account.

The U.S. can't expect other nations to increase purchases of Treasuries to fund its entire fiscal shortfall, said Zhu, a former vice president of Bank of China Ltd. Efforts by the U.S. to cut its current-account deficit mean other nations accumulate fewer dollars through trade, leaving them with less money to buy Treasuries, he added.

The Dollar Index, which Intercontinental Exchange Inc. uses to track the currency against those of the U.S.'s biggest trading partners, has declined 4.4 percent this year. The currency climbed today to the highest level in three months against the euro after Standard & Poor's downgraded Greece's debt rating yesterday.

International demand for long-term U.S. financial assets rose less than economists projected in October as investors abroad sold agency and corporate debt, a Treasury Department report showed this week.

Treasury Secretary Timothy Geithner said earlier this month that the U.S. remains a haven for investors.

When investors were most worried at the height of the financial panic last year, "people brought their money into dollars and Treasuries," he told CNBC on Dec. 3. "As fear has receded somewhat and confidence returned, some of that has been unwound and reversed."

Chinese officials say they favor a "stable" dollar. China has effectively pegged its currency, the yuan, to the dollar since July last year to help the Asian nation's exporters weather slumping global demand.

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