The Chinese know it too, they know it because Ben Bernake keeps telling us inflation is good and increasing the money supply to make the dollar worth less Besides, Tim Geithner keeps whining about the need for them to inflate the value of their money, to offset the devaluation of ours. The Chinese think either Geithner is an idiot or he thinks they're idiots.
The Chinese have based they're their economy on on the acquisition of wealth. It's pretty simple concept, up until the end of WWII we had the same philosophy. If a country exported more than it imported, it had a trade surplus. It took in more money than it had to pay out to other countries. We the United States was doing it the currency from the other countries could either be returned to that country buy purchasing more goods from them, or redeemed for a hard commodity, generally gold. We became the wealthiest country on the planet. That wealth provided us with the most powerful military on the planet. Worldwide trade was based on the dollar, because the US was the richest and most secure bank in the world. Since WWII we have run a balance of trade deficit, we've exported more money than goods,
Years ago we stopped redeeming the dollar for gold, other countries had to find another way to cash in their dollars. Some countries, like Japan, and more recently China used their stockpiled dollars to buy US Treasury bonds or American Debt. At least the interest gave them some hedge against the dollars ongoing devaluation. China currently holds almost a trillion dollars in Treasury Bonds. China also holds almost two trillion dollars in US Currency. That's a big chunk of China's total net worth. Much like the United States used to do with Gold and Sliver, China basis it's currency on what it has in the treasury, since that is make up largely of dollars, it the value of the dollar goes down, so does their net worth....
China feels trapped by the dollar, they'd like to ditch it completely, but they own so many of them they can't, unless;
Tomorrow I'll see if I can try to explain why the Chinese, and everyone else in the world, except government economists. madmen, big bankers and Paul Krugman think the western monetary system is nuts.
Wish me luck
