China disclosed the other day that its foreign exchange reserves had increased to about $2.4 trillion in 2009, a gain of $453 billion for the year. These stupendous figures -- and the likelihood that the country's reserves will rise by a comparable amount this year -- have now become a financial, economic and geopolitical reality of surpassing significance.

The significance is not, as many imagine, that China might suddenly "dump" the dollar and dethrone it as the world's major international currency, undermining American economic power and prestige. Two-thirds or more of China's reserves are estimated to be held in dollars. As an economic strategy, dumping the dollar would boomerang. It would amount to a declaration of economic war in which everyone -- Chinese, Americans and many others -- would lose.

Consider what would happen, hypothetically. China would first sell securities in which its dollars are invested. That would include an estimated $800 billion in U.S. Treasury bonds and securities, plus billions of American stocks and corporate bonds. After unloading the securities and collecting dollars, it would sell the dollars on foreign exchange markets for other currencies: the euro, the yen and who knows what else.

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The massive disgorging of dollars could trigger another global economic collapse. As China's selling became known, other foreign and American investors might jump onto the bandwagon, abandoning dollar securities and shifting currencies. If panic ensued, markets would fall sharply. Banks and investors would see their capital and wealth erode. The resumption of the global recession, even depression, would shrink foreign markets for China's exports (in 2009, its exports fell 16 percent). To protect jobs, other countries might impose quotas or tariffs on Chinese imports. Why would China do this to itself? The answer: It wouldn't.

Look elsewhere for the significance of the huge foreign exchange reserves. For starters, they confirm China's mercantilist trade policies. A country that practices mercantilism strives to increase exports at the expense of its trading partners. China has done this by keeping its currency, the renminbi (RMB), at an artificially low rate replica breitling that gives its exports a competitive advantage on world markets.

It's often said that the United States "borrows" from China, because the Chinese hold so many Treasury bonds. This inaccurately describes reality. In 2010, economist Nicholas Lardy of the Peterson Institute expects the trade surplus to grow. So China accumulates dollars, which must be invested. The large surpluses cause China to "lend" to us and other countries, regardless of whether we want the "loans."

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Even if China had no trade surplus, its foreign exchange reserves would probably grow because it receives earnings on its existing reserves. These reserves serve other Chinese strategic purposes. They're used to make investments in raw materials and important technologies around the world; or they buy political influence with foreign aid or favorable loans. In effect, China has a $2.4 trillion stash to use as it pleases. The irony: Despite complaints about big Treasury holdings, these holdings advance China's economic aims of job creation through exports and protection against scarcities of vital commodities. The underlying purpose is to bolster the government's grip on power by ensuring rapid economic growth.

But what's good for China may not be good for the rest of the world. It's not simply a redirection of economic power but a question of how that power will be used, consci
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