Inflation in China 2007

In an article written last week called ‘whats all the fuss about the US dollar’ a point was mentioned regarding the fall of the Dollar and its affect on China’s economy, one of the things mentioned was the inflationary pressure that China will feel when a weak dollar means stronger currencies can purchase more and more commodities like oil.

layman interpretation: Oil is priced in US Dollars, so if the dollar gets weak (eg: at the moment we have a strong euro – so if you went to New York for christmas shopping you could get more for less) then oil becomes cheaper to buy, because everybody needs oil the stronger currencies will be readily able to purchase more and this drives up the price of oil because of demand. China needs oil and almost everything else to continue with growth and as they hold massive dollar reserves there is a twofold action taking place. Firstly their national reserves (in dollars) is worth less, so maybe thats why the Sovereign wealth fund of China is making moves to bail out …

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