China's central bank issued a warning Thursday about the risks of dollar weakness, piling fresh pressure on the US currency after a steep drop over the past few weeks. The warning was contained in the full version of the central bank's 2006 financial stability report, which it posted on its Web site.
"If external capital stops flowing into the United States, a significant drop in the US dollar may occur with consumption and investment shrinking, interest rates rising and financial markets experiencing turbulence - endangering global financial and economic stability," the report said.
The central bank, holder of the world's largest foreign currency reserves, said more capital will flow into China as the US dollar weakens and fund managers dump dollar-denominated assets.
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