Krugman: A dollar crisis?

[Seth Ackerman]

Rakesh, you make a good point that the dollar's status offers tremendous
protiections to the U.S., but isn't the emergence of the Euro a major
development on this front? I'd like to ask you and Doug and anyone else
who'd like to comment: what would happen if the Chinese, in a huff at the
U.S., decided to dump all of their immense dollar reserves and exchange them
for Euros?

Presumably some chaos would ensue in the financial markets, but the actual
exchange of dollars for euros would cost the Chinese nothing, right? The two
currencies are both very liquid, with a lot of trade denominated in both. In
a sense, isn't this power somewhat akin to having nuclear weapons? Everyone
assumes you won't use them, but the fact that you *could* use them makes all
the difference. What are people's thoughts?

Seth