In Shengshi: Zhongguo 2013, Chan Koonchung's satirical novel of the near future (published in English as The Fat Years), 'China's golden age of ascendancy' is ushered in by a new financial crisis in which the US dollar loses a third of its value in a single day. In Chan's book, the US dollar's collapse is a handy plot device. But for the inhabitants of Hong Kong, much of whose wealth is tied to the US currency through the city's exchange rate peg, the thought of a US dollar crash is deeply unsettling. Reading The Fat Years, they will ask themselves 'Could the US dollar's value really collapse by a third in a single day?' We know from bitter experience that stock markets can plunge by that much in one trading session. On October 26, 1987, Hong Kong's Hang Seng index fell by exactly 33.3 per cent after officials reopened the exchange following the global stock market slump of the previous week. But stocks are one thing, you might argue. They can crash in isolation. Currencies are a different matter. Exchange rates are relative prices, which means for a currency to crash, it must collapse in value against something else, usually another currency. So can a currency fall by a third in a single day? Unfortunately, the answer is 'yes', as a look back at the Asian currency crisis of the 1990s shows. At the close of Asian trading on 21st of January 1998, the Indonesian rupiah was quoted in Singapore at an exchange rate of 11,575 rupiah to the US dollar. The next morning, amid a widespread panic, the Indonesian currency collapsed to a new low, with traders in Bank of America's Singapore dealing room reporting that they had bought the Indonesian currency at an exchange rate of 17,100 rupiah to the US dollar. That represented an astonishing 32.3 per cent drop in the rupiah's value from the previous evening. OK, you might respond. That was the rupiah, a well-known basket case. But this is the US dollar we are talking about; the currency of the world's biggest economy, its unrivalled medium of exchange and the most widely held store of wealth on the planet. Surely the US dollar couldn't crater in value by a third? Well the US currency may never have suffered such a big one-day fall in its value, but it has certainly taken some nasty tumbles in recent years. In October 1998 the US currency nosedived by 15 per cent against the Japanese yen in just two days after the US Treasury intervened in the foreign exchange market through the Federal Reserve in order to support the Japanese currency. And since February 2002, the US dollar has sunk by 35 per cent in value against a trade-weighted basket of currencies. But a 33 per cent fall in a single day is harder to imagine. For the US currency to slide so far, so fast, a number of improbable conditions would have to be met. First, private investors around the world would have to lose all belief in the US dollar as a store of value and in the willingness of the US government to honour its debts. Such a catastrophic loss of faith looks unlikely. Even during the summer of 2011, with the US administration and Congress locked in a seemingly intractable dispute over government debt and with a possible default looking imminent, investors stood by US dollar assets. During the month leading up to the potential debt crisis, the US currency was flat while the price of US Treasury notes actually rose. Second, the world's central banks would have to decide to let the US dollar collapse. That, it has to be said, looks even less probable. In the event of a US dollar crisis, it is inconceivable that the European Central Bank, the Bank of Japan and others would not step into the foreign exchange market to support the US currency and maintain market stability. And of course, for the US dollar to collapse by a third, the People's Bank of China would have to halt its programme of US dollar purchases, allowing the yuan to appreciate by 50 per cent against the US currency. There are a couple of powerful reasons why the PBOC would not be prepared to do that. For one thing, the Chinese central bank would hardly want to see the value of its US dollar reserves plunge by a third, a fall which would blow a 4 trillion yuan (HK$4.9 trillion) hole in its own balance sheet. For another, policymakers in Beijing would be extremely unwilling to see the purchasing power of consumers in their largest single export market suddenly reduced by a third. In Chan's book, the authorities dealt with that problem, substituting domestic demand for exports by the simple expedient of forcibly converting a quarter of all household deposits into vouchers which would expire worthless if not spent within six months. You might argue that China's savers would not take such a draconian measure lying down. But in Chan's story Beijing devises a cunning strategy to overcome all popular opposition to its policies. If you want to find out what it is, you'll just have to read his book.