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.
Inflows of cash have
undermined efforts to cool growth in the world's fastest growing major
economy and increased the risk that banks will be saddled with bad
loans, the bank said.
The country's trade surplus, forecast by
the government to swell 65 percent to a record US$168 billion (HK$1.31
trillion) this year, has flooded the economy with funds and sparked
calls by trading partners for faster gains in the yuan. China's October
money supply unexpectedly accelerated for the first month in five.
"Everyone's
looking for excuses to get out of the dollar and bet on more Asian
currency strength, and this provides it," said Claudio Piron, head of
Asian currency research at JPMorgan Chase Bank in Singapore.
"It's providing support for all the Asian currencies."
The
world economy has been enjoying the strongest sustained growth in 30
years, even as the US current account deficit steadily widens and
surpluses grow in Asia and oil- producing countries. But the People's
Bank of China said the longer the imbalances persist, the greater the
risk of a disorderly adjustment and of damage to the world economy.
"If
the US current account deficit continues to grow faster than GDP, then
the investment value of US assets may be subjected to doubts and
challenges and the willingness of investors to continue holding and
buying US financial products may weaken," the central bank said.
