It’s easy for Americans to pooh-pooh bearish talk about the dollar. Yet the sterling was once the reserve currency, and has fallen, what, by 80% since it lost its standing.
With increasingly dubious accounting and lax enforcement, the US capital markets no longer stand out by virtue of being better regulated. Yes, they still may be deeper and more liquid. But overseas buyers have to look hard at foreign exchange risk. The direction for the dollar in the long term is certain to be down. Overextended debtors trash their currencies (see the Great Depression, the Nordic and Swedish banking crises, and the Asian crisis for a few of many examples).
What is interesting about the Xie piece is that even the stalwart Chinese retail investor has become leery of the dollar. Despite th logic of “oh if you sell, you only hurt yourself”, the flip side is if you become certain you are indeed holding a depreciating asset, it makes sense to exit. You want to be early, not late, out.
And that logic, if it starts to take hold, in classic run on the bank fashion, could lead to a disorderly fall in the dollar. It isn’t clear what the trigger might be, but Bob Shiller contends that sudden flights from markets don’t necessarily require an event to kick them off. And given that Willem Buiter, who though fond of colorful writing, is hardly an extremist, foresees a collapse in dollar assets if the US fails to contain its fiscal deficit, talk of a dollar plunge isn’t a a radical view.
From the Financial Times:
Emerging economies such as China and Russia are calling for alternatives to the dollar…Because the magnitude of the bad assets within the banking system and the excess leverage of its households are potentially huge, the Fed may be forced into printing dollars massively, which would eventually trigger high inflation or even hyper-inflation and cause great damage to countries that hold dollar assets…
….emerging economies…have amassed nearly $10,000bn (€7,552bn, £6,721bn) in foreign exchange reserves, mostly in dollar assets. Any other country with America’s problems would need the Paris Club of creditor nations to negotiate with its lenders on its monetary and fiscal policies to protect their interests. But the US situation is unique: it borrows in its own currency, and the dollar is the world’s dominant reserve currency. The US can disregard its creditors’ concerns for the time being without worrying about a dollar collapse.
The faith of the Chinese in America’s power and responsibility, and the petrodollar holdings of the gulf countries that depend on US military protection, are the twin props for the dollar’s global status. Ethnic Chinese, including those in the mainland, Hong Kong, Taiwan and overseas, may account for half of the foreign holdings of dollar assets….
The Chinese love affair with the dollar began in the 1940s when it held its value while the Chinese currency depreciated massively. Memory is long when it comes to currency credibility. The Chinese renminbi remains a closed currency and is not yet a credible vehicle for wealth storage. Also, wealthy ethnic Chinese tend to send their children to the US for education. They treat the dollar as their primary currency.
The US could repair its balance sheet through asset sales and fiscal transfers instead of just printing money. The $2,000bn fiscal deficit, for example, could have gone to over-indebted households for paying down debts rather than on dubious spending to prop up the economy. When property and stock prices decline sufficiently, foreign demand, especially from ethnic Chinese, will come in volume. The country’s vast and unexplored natural resource holdings could be auctioned off. Americans may view these ideas as unthinkable. It is hard to imagine that a superpower needs to sell the family silver to stay solvent. Hence, printing money seems a less painful way out.
The global environment is extremely negative for savers. The prices of property and shares, though having declined substantially, are not good value yet and may decline further. Interest rates are near zero. The Fed is printing money, which will eventually inflate away the value of dollar holdings. Other currencies are not safe havens either. As the Fed expands the money supply, it puts pressure on other currencies to appreciate. This will force other central banks to expand their own money supplies to depress their currencies. Hence, major currencies may take turns devaluing. The end result is inflation and negative real interest rates everywhere. Central banks are punishing savers to redeem the sins of debtors and speculators. Unfortunately, ethnic Chinese are the biggest savers.
Diluting Chinese savings to bail out America’s failing banks and bankrupt households, though highly beneficial to the US national interest in the short term, will destroy the dollar’s global status. Ethnic Chinese demand for the dollar has been waning already. China’s bulging foreign exchange reserves reflect the lack of private demand for dollars…
America’s policy is pushing China towards developing an alternative financial system. For the past two decades China’s entry into the global economy rested on making cheap labour available to multi-nationals and pegging the renminbi to the dollar. The dollar peg allowed China to leverage the US financial system for its international needs, while domestic finance remained state-controlled to redistribute prosperity from the coast to interior provinces. This dual approach has worked remarkably well. China could have its cake and eat it too. Of course, the global credit bubble was what allowed China’s dual approach to be effective; its inefficiency was masked by bubble-generated global demand.
China is aware that it must become independent from the dollar at some point. Its recent decision to turn Shanghai into a financial centre by 2020 reflects China’s anxiety over relying on the dollar system. The year 2020 seems remote, and the US will not pay attention to something so distant. However, if global stagflation takes hold, as I expect it to, it will force China to accelerate its reforms to float its currency and create a single, independent and market-based financial system. When that happens, the dollar will collapse.
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While I do agree that the US needs to be careful about the mid-term implications of its deficit spending, I don’t quite see why China’s decision to become “independent of the dollar” and to push Shanghai as a financial center (that particular idea has been around for more than a decade, and hasn’t really progressed all that much so far) has to lead to a collapse of the dollar.
If there is massive US inflation (or fear of massive inflation), the dollar will go down. If the US current account deficit starts ballooning again (as opposed to contracting sharply, as it has done in recent months), the dollar will also go down eventually.
In comparison, China’s decision to “become independent” will have a rather secondary effect on the dollar, IMHO.
This paragraph gives me whiplash:
The US could repair its balance sheet through asset sales and fiscal transfers instead of just printing money. The $2,000bn fiscal deficit, for example, could have gone to over-indebted households for paying down debts rather than on dubious spending to prop up the economy. When property and stock prices decline sufficiently, foreign demand, especially from ethnic Chinese, will come in volume. The country’s vast and unexplored natural resource holdings could be auctioned off. Americans may view these ideas as unthinkable.The first part is right on about how government efforts should have focused on treating real wounds and instituting real remedial programs, instead of the pure squandering which is part of the tragedy of these “bailouts”.
But I can’t imagine what “vast and unexplored resource holdings” he could be talking about. None exist on-shore, and if the reference is to the Great Game of Arctic exploration (which hype has been decidedly dampened over the past year by the financial crash), here even the bullish USGS has projected that the Arctic as a whole might add another 25% to the already dubious expectations for hitherto undiscovered oil reserves.
So even if America wanted to sell the silverware, it has little left. (As for shale oil, to develop that at all wouldn’t be to sell or use the silverware, but to burn your own house down, that’s what an envrionmental and economic catastrophe it would be for the sake of a few barrels of syncrude.
It would be insane in itself, let alone “selling off” the destruction for the Chinese weal.)
That’s one thing which is wrongheaded about the comparisons to the Depression and hopes for a new New Deal (though I haven’t been hearing those much either in recent months). In the 30s America’s resource base was still largely intact. Oil, metals, and most of all farmland were all still in ample supply, if someone could figure out a way to reform the economy to remder them productive.
Today all of these have been severely degraded and/or depleted, to the point that whereas in the 30s the challenge was primarily political: how to get the country back in the hands of the people, today we face not only this same challenge (in more intense form), but even if we could take back the country, we’d then be faced with the challenge of how to make it work in such a physically degraded state.
Andy Xie: “If China loses faith the dollar will collapse”
The dollar is very safe for the time being … Almost every country in the world is printing currency to prop up their economies …
Over the longer term the US must balance its trade … or at least within 1 or 2% …
This of course means more production at home, fewer imports or the GDP shrinks and sinks the budget …
As far as China, they will truly have to integrate their currency into the world economy before this even becomes plausible. Then again this mean a much higher Yuan or devaluation just like the dollar. As far as the Euro the latest reports are not kind to the prospects they face.
“…What is interesting about the Xie piece is that even the stalwart Chinese retail investor has become leery of the dollar…”
You hit the nail, Yves. What I read in Xie’s op-ed is the increased anxiety of indigenous industrial capital over the global-trotting, indiscriminately exploitative Anglo-Saxon financial capital. Hence the word “fleecing the sheep”(剪羊毛) and the conspiracy book “Currency War”(货币战争） being the best-selling book in China last year.
We truly reached an inflection point. Old cards have been dealt with too many hands — we need a new set.
k, I am not sure what the hell you are referring to as a “global-trotting (sic), indiscriminately exploitative Anglo-Saxon financial capital.” The Chinese like making their money just as much as the next guy in the line; they have even less patience, (I think), with European-style welfarism than Americans do.
“global-trotting (sic), indiscriminately exploitative Anglo-Saxon financial capital.”
80s – latin america debt crisis;
90s – mexico peso crisis;
90s – asian financial crisis;
08 – eastern european debt crisis.
hence the word “currency war.”
I am not a conspiracy believer(I do read FT and am aware of those “internal imbalance” “structure weakness” writings), but do think those with the power will abuse the power, chinese or american.
Mainland China’s per person GDP (PPP) is 100th in the world.
Just behind Angola, and just ahead of Egypt.
Let’s get real here.
Any good writer on China has to acknowledge that the vast majority of its people are extremely poor. If they don’t, they are either ignorant, fear mongering, or engaging in mindless nationalism.
Andy Xie is of course right but he should also remember that because of the Ying-Yang relation between China and the US, if China loses faith in the dollar, China would also collapse. We are all riding on an illusion… feel sorry for him who gets off to early… and feel sorry for him who gets off to late…never before, with respect to currencies, have the “In God we trust” seemed so appropriate.
Scary indeed. However it brings to mind old Ben from a couple of hundred years ago when he quipped “We shall hang together or we shall assuredly hang separately”…
Something to that effect. Same as now. The dollar will remain the currency of choice for a host of reasons. Most of the countries yapping for a new currency have political rather than economic reasons not unlike our current situation in regards to Obama quoting the New Testament for building a new economic model to escape the “boom and bust cycle”. LOL.
And now after the financial crisis exploded in the USA the world, in its relation to the dollar, seems to be applying the old maxim attributed to Roosevelt saying “the dollar might be a s.o.b. but it is our s.o.b.”
YS:
Eventually the People’s Bank of China will pull the plug on the dollar. Got get? Get more! Chinese retail investors have been selling dollar assets for months.
China has buried itself deep inside a ponzi scheme of US Dollars… they don’t have a CHOICE – they HAVE to continue to fund us – anything otherwise would destroy their existing investments.
what i don’t get is their solutions: like buying IMF debt (newsflash: the IMF has no revenues: how will the IMF repay the bonds it sells to China? by selling more bonds to China?)
Red Herring.
Forget the Chinese. What happens when the Saudis don’t want to get paid in dollars any more?
Hmmm?
@attempter said: “Today all of these have been severely degraded and/or depleted, to the point that whereas in the 30s the challenge was primarily political: how to get the country back in the hands of the people, today we face not only this same challenge (in more intense form), but even if we could take back the country, we’d then be faced with the challenge of how to make it work in such a physically degraded state.”
That’s a great insight that speaks to the severity of the problems we now face. Our current predicament is not just as bad as it was in the 30s, it’s worse, because if we can wrestle government away from an ruling elite that has gained entirely too much economic and political power, we still face the dilema of making do on less.
I began reading Kevin Phillip’s American Theocracy over the weekend. He cites the history of how Carter “promoted government restraint in budgetary matters and a vague attempt to crystallize ‘less is more’ and ‘smaller is better’ viewpoints, both of these in opposition to earlier mandates to spend, build, produce and consume.”
I was struck by how successful Carter’s initiatives for energy conservation proved to be: “Between 1977 and 1985–and in the face of an expanding economy–oil demand fell by more than one-sixth. The percentage of oil consumed in the United States annually that had to be imported shrank from 46 percent to 30 percent.”
But, beginning in 1980, the American people went on an extended mental holiday. The Republican Party hobbled together a coalition of financiers, oil men and religious end-timers and the country embarked on a an orgy of unprecedeted consumption, debt and “petro-imperialism.”
I, like Phillips, am especially intrigued by the role religion played (and continues to play) in all this. Orthodox economists downplay, or totally dismiss, the importance of religion (as well as morality) in economic life. But as John Gray pointed out: “Economic activity is not a freestanding form of social life. It is an outgrowth of the religious beliefs, family relationships and national traditions in which it is embedded.” Phillips goes on to cite some pretty astounding statistics: “Some 30 to 40 percent of the Bush electorate, many of whom might otherwise resent their employment conditions, credit card debt, heating bills, or escalating costs of automobile upkeep, often subordinate these economic concerns to a broader religious preoccupation with biblical prophecy and the second coming of Jesus Christ.”
Anyway, the bill is now coming due for almost three decades of profligacy and what, in the rearview mirror, was clearly mind-numbing stupidity. Those economists who cling to the unshakable faith that the dollar cannot become a victim to all this I would put in the same category as the “rapture, end-times, and Armageddon hucksters.” They form the secular component of what Phillips calls a “Hebraic analogy” and “convenanting” culture that believes Americans are a chosen people.
As Phillips goes on to point out, such cultural belief systems, of which our dominant economic paradigm is certainly part and parcel, work superbly well until they don’t. Alternate physical and cultural realities emerge and societies who cannot change and adapt lose their privileged position. Such has been the case with the Romans, the Spanish, the Dutch, the British, the Afrikaner (Dutch) South Africans and very well could be with the United States and what Phillips calls the “latter-day Zionist reprise of Ancient Israel.”
Do you mean to say that the dollar is the ponzi scheme par excellence?
I am not sure of that since I guess that for a ponzi scheme to be a real ponzi scheme it must not be known to be a ponzi scheme and I think the US is very open about what they are doing and the world accepts it.
“America’s policy is pushing China towards developing an alternative financial system.”
China has two main complaints against the US:
1) We’re using our currency to help us get out of this crisis
2) We don’t guarantee assets, such as bonds
They have already taken numerous steps:
1) Swap lines in their own currency
2) A regional bailout fund
3) Telling everyone that we’re unreliable, and it’s working
Although we are still a flight to safety port, the flight from agencies to treasuries, from implicit to explicit guarantees, was not a good deal for us. It was a deflationary move of some magnitude, and showed the beginnings of lack of trust in us.
Oddly, Geithner’s mocked total guarantee is exactly what the Chinese wanted and expected. China believes that being the economic powerhouse brings with it certain responsibilities. In the Asian Crisis, for example, China believes that it never used its currency for its benefit, or reneged on deals. The Chinese claim that this is acting responsibly, while we, in this crisis, are not.
The threat of defaulting on bonds, loans, especially if we are de facto running or backing these companies, is very irresponsible from the Chinese perspective.
Truly, the Chinese are making headway in this crisis worldwide in portraying us as irresponsible, and not worthy of having the position in the world financial system that we do. It will matter going forward because of foreign investment, and the desire for US goods.
But hey, let’s keep telling ourselves that we have the upper hand, right up until the point that we don’t. If people don’t believe that much of the world blames us for this crisis, they’re going to be in for a rude awakening. Solving our crisis at the expense of foreign countries and investors seems a really poor move.
Don the libertarian Democrat
“The 2,000 B fiscal deficit could have gone to individual households for paying down debts rather than on dubious spending to prop up the economy.”
I thought the bailout money Did go to individual households: dividends, bonuses, and hedge fund payoffs. The crisis is that words are being used as weapons against the average citizen, and not just in the US. Erase the board and realize that it is what it appears to be. The country is undergoing an economic collapse, not a recession. The politicians are transferring wealth, not propping up the economy. The banking system is insolvent, with more losses to come. The Plan of Timothy Geinther is going along smoothly: enriching elite and corporate interests through fraud and obfuscation. The Chinese see clearly our dilemnas.
The faith of the Chinese in America’s power and responsibility, and the petrodollar holdings of the gulf countries that depend on US military protection, are the twin props for the dollar’s global status. Ethnic Chinese, including those in the mainland, Hong Kong, Taiwan and overseas, may account for half of the foreign holdings of dollar assets. The key for holding of US $ by foreigners including Chinese, Japanese … is the oil the US seems to be able to control (in Saudi,Iraq and possibly Iran). When the US is weak, and about to withdraw from Iraq, and no longer trying to invade Iran and create a continuous corridor of energy (oil+uranium) from Saudi Arabia through Iraq,Iran and Afghanistan, all of this empire thing fall apart, including the US $.
The ironic thing about this is the Russian, Iranian or whoever produce the EFPs that are now used in Iraq and Afghanistan invested a few million dollars on R&D and brought down the biggest empire the Earth has seen. That is just a fabulous ROI. This this what I wrote in July 4th of 07.(scroll to the end of comment page). And I’m of no economist background whatsoever.
If the Chinese dump the dollar [and they certainly might]… then they also give up a lot of their competitive advantage to our consumer market. They can’t have both – asset values denominated in a perpetually strong dollar AND infinitely growing trade surpluses with the US… one or the other ‘goes down’.
Until that part of the story is addressed in conjunction w/ the dollar story we won’t get the full picture and policy makers won’t be closer to a ‘solution’.
Meanwhile the earth continues to circle the sun.
China has been accumulating a lot of gold based on what I’ve read. What better hedge against their dollar holdings?
1) amass gold
2) dump dollar assets, lose 30%
3) regain losses thanks to explosion in gold price
4) use gold holdings to step in and buy the last bits of American industry. USA too desperate to say no.
Seems reasonable enough.
dryfly,
Germane to this discussion is the post by Ed Harrison in today’s links: “Asia is de-coupling”
If this trend proves sustainable, then U.S. exports may diminish in importance relevant to the overall constellation of demand outlets for Chinese products. This might influence China’s decision relative to the dollar.
“China believes that it never used its currency for its benefit”
One of the tricky things about these kinds of discussions is the fact that one term is interchangeably used to represent both a government and a populace.
I assume your statement meant that the Chinese people believes that it’s government never used it’s currency for China’s benefit.
Because it would be downright silly to suggest that China hasn’t been knowingly manipulating it’s currency for it’s own benefit for a very long time now. This policy was a (not THE by any means, but absolutely A) major contributing factor to this situation from a Big Picture perspective.
But I agree with you that the world undoubtedly blames us for this situation (of course they blame us for everything as a knee jerk reaction and have for many years, but that’s a different discussion).
i am reminded of this famous adage:
‘if I owe you $1 its my problem.. but if i owe you $1mm then it becomes your problem’
currencies are a relative value instrument – and at this point in time, there doesn’t seem to exist a feasible alternative which enjoys the same amount of liquidity
and remember when the US Govt banned individuals from cashing in Gold..
First, a quick aside … Is the ad that asks the question “Looking for a beautiful Asian bride” an intentional placement or an example of Google’s oversimplified automated advertising technology? Regardless, I don’t think it does much for the image of NC.
As to dryfly’s comment noting the connection of China’s dependence on exports and dollars, I agree. However, I think China’s way out of that predicament is an attractive one – increase consumption internally. As was also noted in the comment stream, incomes and consumption both have a lot of room to grow in China.
Unfortunately for the U.S., I think the “solution” to the current unsustainable dynamic is for our consumption to decrease. This is an unattractive proposition for most Americans, and one that may be politically impossible to condone, which is why I think anyone professing to have certainty about the eventual outcome is off base.
Walter,
Yes. That's why I said 'believe'. Let me get you the best place that they've argued this:
http://www.pbc.gov.cn/english//detail.asp?col=6500&ID=138
"2. The role and contribution of China, as a responsible big country, in Asian financial crisis
In order to mitigate the impact of Asian financial crisis and help crisis-stricken Asian countries walk out of the plight, then China's Premier Zhu Rongji promised, on behalf of the Chinese government, to the world that the RMB would not depreciate, followed by a series of active measures and policies.
(1) China made vigorous efforts to participate in the IMF's rescue operations to help related Asian countries. After the outbreak of financial crisis, under the arrangement framework of the IMF, the Chinese government provided a total of over US$4 billion assistance to Thailand, as well as export credit and emergency free medicine assistance to Indonesia and other East Asian countries, although China had inadequate foreign exchange reserves at that time.
(2) China actively cooperated with relevant parties to participate in and advance regional cooperation. At the sixth ASEAN informal leaders' meeting, then China's President Jiang Zhemin unveiled three proposals of strengthening regional cooperation to refrain the crisis from spreading, reform and improve international financial system, and respect self-selected measures of relevant countries and areas to overcome financial crisis. At the second informal ASEAN+China, Japan and Korea leaders' meeting and the informal ASEAN+China leaders' meeting, then Vice President Hu Jintao emphasized that East Asian countries should vigorously engage in reform and adjustment of financial system, with the most pressing need to intensify the management and supervision over short-term capital flow. He called on the East Asian countries to strengthen exchange on macroeconomic issues such as financial reform, have dialogue between deputy finance ministers and deputy governors of central bank, and form expert team at appropriate time to launch in-depth research on specific measures on managing short term capital flow. The above measures adopted by the Chinese government received positive response and support from most crisis-stricken countries.
(3) China promised that the RMB would not depreciate. Being a highly responsible country, the Chinese government made the decision of no depreciation of the RMB with an aim of safeguarding regional stability and promoting development, which played a pivotal role in maintaining economic and financial stability of the Asian countries and the world at large, as well as Asian countries' economic recovery and regaining of rapid growth in later years.
(4) China implemented policies to boost domestic demand and stimulate economic growth. While sticking to no depreciation of the RMB, the Chinese government took a wide range of measures to boost domestic demand and stimulate economic growth, which safeguarded health and stability of domestic economic growth, mitigated difficult situation in the Asian economies, and fueled recovery of Asian economy.
The adoption of these measures by the Chinese government embodied that as a part of Asia, China had a full awareness of collective interests and responsibility and has made its due contribution to the rapid recovery and regaining of growth momentum of the Asian economy."
Now, of course, there's something amusing about China saying that it doesn't use currency considerations in its planning. However, they're making a more salient point, which is that they did not use their currency for their own advantage during a crisis.
Bottom line, whether true or not, China is getting very good at playing the capitalist game very fast. They have problems, but, even so, they do make some at least plausible sounding criticisms against the US in this crisis.
Take care,
Don the libertarian Democrat
I think the crash of the dollar will happen as soon as we cross the threshold ( if we haven’t already) of a $15trillion current account deficit with a 10 year note at a rate of 5%. That will start the domino effect, printing money and a hyperinflationary burst.
the value of the US dollar is relative to other currencies around the world. 1. continue to win the augument that other countries should deficit spend and use quantitative easement..2.other economies are as bad off or worse.
so long as these two conditions continue the ‘relative’ positions of alternatives remains the same and nothing is really ‘devalued or inflated for that matter. zero sum game.
keep everyone on board for now…continue to play the waiting game of ‘stabilization’ and see where the power shifts take us after the middle term of this disaster.
so far, no one is really talking about creating a sustainable economy rather then one based upon endless growth/ponzi. hence the all the players seem to be willing to stay in the game…for the forseable future…imo.
Michael
@DownSouth:
Your point on religion is much more important than you may think. If we consider the obvious depletion of resources since the 1903’s due to its ever increasing exploitation by a growing number of people during the last six decades, the painfully obvious conclusion is that the growth in population must get to zero and reach a steady state. So must our economy by the way; the concept of sustainable development is not a fantasy driven by wild-eyes tree-huggers anymore. It has become a imperative for the survival of our societies AS WE KNOW THEM. That is, only a surplus of energy and available resources can allow a complex and culturally rich social system.
The crux of the matter is that the global population MUST reach a steady state. What is the most daunting obstacle to this goal? Cultural attitudes driven by religious beliefs. I don’t see how we can tackle this situation. But we must.
China naturally is seeking to protect the value of what is an asset on its books (which is a liability for the U.S.). The U.S. has the ability to effectively discount that debt. Shifting away from the dollar is a smart move for China, and actually a good thing for the U.S. in the long-term. The U.S. needs to end its own internal knee-jerk response to everything (which is simply to issue more debt). See: http://www.debtdeflation.com/blogs/2009/01/31/therovingcavaliersofcredit/
China has alrady curtailed their dollar purchasing.
http://thelastgoodidea.blogspot.com/2009/04/have-we-reached-beginning-of-end.html
In effect, mom and dad cancelled juniors credit card.
Isn’t the US still the biggest consumer? If the dollar weakens versus the rest of the world, this means a fall in demand in the rest of the world.
Everyone may want out of dollars. But the big holders of dollars are of course big exporters. And they do not want to see a fall in demand at the moment. In the long run they will probably shift away from their dollar centric, export oriented strategies but will probably not do so if it means a collapse in demand for their exports. It is “lord make me virtuous, but not yet”.
I read an article like this and I just shake my head. So many folks just don’t get deflation. With deflation, you want to devalue your currency. So if China moved out of the dollar, they would be doing us a favor.
While throughout this so called crisis, US had control of its own destiny in a sense..They could print as much money as they could or take on new government debt.
But if the exchange rate of Dollar falls, there is no F’ing way to prevent inflation and then you will see real crisis.
I hope the regulators realize that we enjoy huge consumptive advantages for dollar being reserve currency (inflated dollar), there is huge productive disadvantage..
http://sudhee.blogspot.com/2009/03/reserve-currency.html
I'm an American living in Saigon, Viet Nam. In June I bought a tourist visa to visit China. The price: $130USD. I offered the Chinese consulate the equivalent in RenMinBi, but they refused: US Dollars accepted only. No flight from the dollar here.