A thought-provoking essay in today’s Philadelphia Bulletin from banking expert Patrick Barron. Interesting argument:

In 1963, the French government demanded that America redeem 80 percent of what it owed France in gold. Eight years later, America reneged on its promise to redeem the dollar for gold. Bretton Woods collapsed, unleashing government profligacy funded by unprecedented currency debasement.
One of our largest trading partners, China, has pegged its currency to the dollar at a fixed exchange rate, meaning that the Bank of China buys dollars with yuan, which American companies then spend in China. Resisting downward pressure on the dollar, which would mean exchanging fewer yuan for each dollar than the market would command, China has imported American inflation just as did France in the years after Bretton Woods. One could insert “yuan” for “franc” in the quote above, for the process is exactly the same. What can China do with its depreciating dollars? It should float the yuan and accept the recession that this would bring to the Chinese economy, an economy that is much too dependent upon exports, as witnessed by the government’s reluctance to end supporting the dollar at its currently high value. Its only other course of action is to exchange dollars for hard assets before the world recognizes what it is doing. It could buy gold internationally, and there is some indication that it is doing this at a slow process so as not to panic the markets, or it could buy American assets … not Treasury bills, but real American assets such as land and companies. Repatriating massive amounts of overseas dollars would cause hyperinflation in the U.S., says Professor Jorg Guido Hulsmann of the University of Angers, France.

Worth reading in full.