China's love-hate relationship with the dollar

Bloomberg reports that, after applying great downward force in recent weeks, the Chinese have temporarily lifted their foot off of the neck of the U.S. dollar, allowing the currency to recover for a short time, though still in a prostrate position.

People’s Bank of China Governor Zhou Xiaochuan said the nation won’t change its currency reserve policy suddenly, helping the dollar to snap a two-day decline.

“Our foreign-exchange reserve policy is always quite stable,” Zhou told reporters at a central bankers’ meeting yesterday in Basel, Switzerland. “There are not any sudden changes.”

The dollar slumped on June 26 after the central bank renewed its call for a new global currency, fueling speculation it will diversify its reserves, the world’s largest at more than $1.95 trillion. U.S. President Barack Obama needs the support of China as his government tries to spend its way out of a recession.

Look for this process to be repeated again and again over the next ten or twenty years as the dollar slowly retreats from its role as the world's reserve currency.