Last week The Daily Telegraph published an opinion piece titled China threatens 'nuclear option' of dollar sales by Ambrose Evans-Pritchard. It makes the following claim:

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

According to Richard McGregor in The Financial Times, the story "was initially dismissed in China but prompted testy responses from US President George W. Bush and Hank Paulson, the US treasury secretary" (Link: China affirms dollar's global reserve status).

According to the FT article, the Harvard-educated Chinese economist whose views were quoted as government policy by Ambrose Evans-Pritchard says his views were misrepresented. The FT quotes several sources who pooh pooh the idea that China will dump its greenbacks.

Writing on Salon.com, Andrew Leonard asks the question 'Will China Drop the bomb on the U.S. dollar?' His answer is no: He takes apart Evans-Pritchard's panic piece, and examines that writer's record of espousing conspiracy theories (The article is reproduced on Howard French's blog here).

The China Daily quotes an announcement by the People's Bank of China that 'the US dollar plays an important role in the global monetary system and dollar assets are an important part of China's foreign exchange reserve'. The article confidently predicts that the announcement "should scotch rumors that Beijing would sell off its US dollar reserve in response to Washington's pressure to revaluate the yuan."

Despite the fact that the recent rise in panicky thinking seems to have been triggered by a piece of sloppy journalism, such official statements from China are not going to reassure everyone. The U.S. website Counterpunch for example, has published a piece by Paul Craig Roberts, a former Wall Street Journal editor and Assistant Secretary of the Treasury in the Reagan administration. It's called China's Threat to the Dollar is Real, and it accuses anyone who does not agree of being "greatly mistaken".

Roberts disagrees with some clear-thinking people who see that it is in no one's interests for China to dump its dollars. But facts about a sell off are unlikely to stop the growing sense of unease in the U.S. about the exposure of the world's greatest economy to the central bank policy of its uppity new rival.