When U.S. Treasury Secretary Timothy Geithner told students at Peking University that China’s holdings of U.S. Treasury bonds were safe, his answer drew loud laughter from the audience.
Even economist and columnist Paul Krugman, who is often critical of U.S. economic policy, found himself defending America when he was repeatedly asked the same questions in China recently: Will you (U.S.) underwrite the value of China’s holdings of U.S. government debt? Will you be prepared to pay a much higher rate of interest against the risk of high inflation and dollar depreciation?
This is a big change from two decades ago, when many Chinese felt the best way to preserve their savings was to convert yuan into dollars on the black market.
Dollars are still affectionately called “mei jin” in Chinese, which literally translates to “American gold”, but they are now also referred to as toxic assets by many in China.