Domingo Cavallo, Joaquín Cottani, 12 May 2009

Economists’ opionions diverge greatly on how to resolve China’s “dollar trap”. This column suggests all US creditors need to do is demand that the US government swap nominal US Treasury bills, notes, and bonds for inflation-adjusted instruments. This will reduce the incentive of the US government to “inflate its way out of debt”, protect the value of emerging market reserves and redcue the risk of a resurgence in world inflation.

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