The $7 Trillion Problem That Could Sink Asia
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Aug. 2 (Bloomberg) -- “It’s our currency, but it’s yourproblem.” This musing from Nixon-era Treasury Secretary JohnConnally is about to find new relevance as the White Housebattles Republicans over raising the U.S. debt limit.
Connally couldn’t have foreseen how right he would be 42years on as Asia sits on almost $7 trillion in currencyreserves, much of it in dollars. Asia’s central banks engaged ina kind of financial arms race after a 1997 crisis, stockpilingdollars as a defense against turmoil. That altered the financiallandscape in two ways: One, Asia now has more weapons againstmarket unrest than it knows what to do with. Two, Asia isessentially America’s banker, with China and Japan having themost at stake.