China selling off US dollars for oil

[Onkel Neal]

Smart move! And down the road, who needs oil more than the US?

China wants to buy oil for several reasons. First, they can. Their huge trade surplus means the Chinese have racked up a giant stash of dollars. But this pile of dollars can be dangerous. Many worry the dollar is set to fall due to rampant American spending. But China is stuck. It can't sell them too fast for fear of accelerating the dollar's weakness. So buying hard assets like oil is a great way for China to diversify its holdings, without destabilizing the greenback.