Reply To: Inflation/dollar collapse


If the Chinese, or anybody else, hold more dollars, then the purchasing power of dollar will be higher than otherwise. Whether or not they exchange rate changes in response depends on the purchasing power of the yuan as well. The exchange rate will adjust so that the purchasing power of the dollar is the same in the U.S. as it is in China. Otherwise, people will gain by shifting their demands away from where the dollar buys less to where the dollar buys more.