By Patrick Brogan
Earlier this morning, China was downgraded by Moody’s. The bond credit rating specialists felt that mounting sovereign debt is eroding the strength of China’s economy, the world’s second-largest, and it will be less of a power in years to come.
The Chinese state planners felt this was an over reaction. The Government said systemic risks from this are relatively low. Earlier this year, it was reported that the US owes China as much as $1.059 trillion.
There, of course, will be a knock-on effect and some of this has already been felt. The Australian dollar has been affected and many Asian companies’ share prices were reduced as a result.
The Chinese want the yuan to replace the US dollar as the world’s dominant currency. A currency war has been waged between the world’s two largest economies. This includes changing exchange rates to boost exports. This is will be a blow to Chinese ambitions and the world will have to wait and see what way Beijing will react.
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