[seanmcdirmid]

China cannot just set the exchange rate arbitrarily, well, without creating huge artificial imbalances that even they can't get away with. Instead, they make their peg real by buying/selling RMB and dollars. So if china wants to prevent the RMB from tanking (and believe me, they do) they need to buy satisfy the demand for dollars bought buy exchanging RMB, just like they buy dollars to provide dollars. China bought treasuries in the first place to park USD from trade surpluses somewhere that wouldn't cause their currency to appreciate, and now they are selling that to prevent depreciation. Balance must be maintained, one way or the other.