Obama Sees No Threat to Dollar

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WASHINGTON - President Obama is defending the U.S. dollar as the world's currency. This comes after China and Russia both said the dollar should be replaced as the world's standard with a new international currency.

The Chinese are worried that U.S. policies will kick off massive inflation that will shrink the value of the dollar. The issue came up in last night's news conference.

When asked about the Chinese view that the value and reliability of the dollar might be in question, Obama replied, "As far as confidence in the U.S. economy or the dollar, I would just point out that the dollar is extraordinarily strong right now. And the reason the dollar is strong right now is because investors consider the United States the strongest economy in the world with the most stable political system in the world."

Click play for more analysis with Dan Mitchell of the CATO Institute.

But some American economists disagree with the president.

On Wednesday, CBN News spoke with Dan Mitchell, an economic analyst at the libertarian CATO Institute.

"I think the Chinese plan to create an international currency out of nothing is a bit fanciful. I don't think that's realistic. But I do think the mere fact that they're talking about it is in effect a referendum on the weakness of the American dollar," he said.

"Why is the American dollar weak? Because we've had easy money policy. In effect, we are stumbling our way back to the inflationary policies of the 1960s and 1970s. I thought we had learned the lesson that you don't try to create prosperity by printing money. And yet that's what happened under Bush, and now Obama's doing it even more," he added.

If inflation does indeed cause a massive devaluation of the dollar, that would also seriously erode the value of China's massive investments in the U.S. currency. Ironically, if China does decide to someday flee the dollar, it could bring about the very devaluation the Chinese fear.

As for the idea of replacing the dollar with a new international currency, experts point out that would be difficult since it is the most widely-held currency in the world.

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