So long ' Dollar '...

Americans may be spending their dollars with merry abandon as the Christmas shopping season begins this Black Friday, and that might be a good short-term strategy: the greenback slid on the foreign exchange markets after a Chinese central banker expressed fears about depreciation of the U.S. currency.

Underscoring the potential for U.S. inflation in a depreciating dollar, an ounce of gold cost $645.60, up from $630.80 on Thursday.

China has never revealed the exact composition of its foreign currency reserves, but market speculation suggests at least 70% is in dollars. With Chinese reserves having recently topped $1 trillion, a move away from the dollar could have significant implications.

For months China has been soaking up U.S. Treasury bonds, using dollars from its huge trade surplus with the United States. Some bankers have noted that East Asian investors not only face a currency depreciation risk from holding dollar-denominated assets but also falling interest rates on long-term bonds. There is some perhaps unintentional irony in that comment because China’s seemingly insatiable appetite for Treasuries seems to be a major cause of the falling interest rates.

Another cause is an expected slowdown in U.S. economic growth. Earlier this week, the United States cut its forecast for 2007 economic growth to 2.9%, down from an earlier forecast of 3.1%. (See “White House cuts economic growth forecast”) The yuan, whose fluctuations are restricted by the Chinese government, hit a record on Friday.

Standard & Poor's said in a research note that it expects the euro to reach $1.32 by the end of the year.

So long 'Dollar'... farewell...