So, I’ve been asking and poking around about how and if the U.S. dollar could be supplanted as the default currency for trade. I’m not even sure if that question makes sense, but I think I remember enough of my international monetary economics class to say that it does make sense. The root of this self-education effort is my concern over deficit spending and the current account deficit. The deficit makes me wonder when people will just get tired of buying U.S. Treasuries. The current account deficit makes me wonder about when the dollar drops enough to the point where people don’t want dollars anymore.

Regardless, I figured this was far off into the future. Then again, maybe not: Today, I read that there’s a rumor that China is selling off dollar assets.

China, which has $515bn of reserves, was also said to be selling dollars and buying Asian currencies in readiness to switch the renminbi’s dollar peg to a basket arrangement, something Chinese officials have increasingly hinted at. Any re-allocation could push the dollar sharply lower and Treasury yields markedly higher.

I am also reading an essay in the September/October’s Foreign Affairs that raises some other warning flags for the U.S. economy. I’m still not sure what to think, but I’m beginning to believe that letting the deficit and current account deficit grow aren’t good things in real, practical ways. The essay in Foreign Affairs does say that it’s unlikely that the various governments around the world would want the U.S. to experience any sort of hard correction. Will that be enough in the end, though, to save us from any major repercussions?

I’d love to hear from anyone that knows more than I do straighten out any misconceptions I have.