Bo Peng

China's First Step Towards Bilateral Currency Swaps

Stephen, good point on the potential competitive devaluation. But if it happens, for example triggered by Japan/Switzerland/ECB doing QE, I think USD would only strengthen before world economy stabilizes, for the same reason why USD has strengthened after the Fed's QE announcement. If Yuan still holds on to the dollar peg under this scenario, then it'd create some very intriguing dynamics.

USD will remain strong for the duration of the depression, even though JPY collapsing is a distinct possibility. I don't know for how much longer Japan can bear the pain. Their decision yesterday to do practically nothing was very surprising to me.

China's First Step Towards Bilateral Currency Swaps

Over the time horizon of 10-20 years, I think the end of USD as the sole reserve currency is almost a certainty. Rather than putting up a futile fight or staying in denial, US could instead try to prepare for and take advantage of it. For example, a devalued USD can have many positive effects on US economy -- jobs, export. But it's something we're not used to, thus appears scary. It takes a change in mentality to adapt to it.