Kurt Brouwer over at the new-and-improved Fundmastery blog tells us why China won't dump the dollar:
We have known for a long time that those countries that export heavily to the U.S. do not want to see lots of appreciation in their own currencies because that would make their products less competitive here. Among these exporters, China is the largest. ... If China dumps dollars, then the dollar might fall and its own currency would probably appreciate versus the dollar, thus exacerbating a problem it already faces. In addition, China does not want to do anything that would help push the U.S. into a recession because when the U.S. economy slows, the rest of the world does too. In conclusion, it seems unlikely that China would dump dollars. In addition, China will probably have to keep increasing its dollar reserves for some time to come.
Phillip Perry of IN @ Mar 15, 2009 12:10:35 PM