Monday, March 23, 2009
Fingercuffs, part deux...
A lapse into 1400s isolationism will occur prior to the U.S. abdicating (as I have said repeatedly here the greatest foreign policy victory in the history of known civilization) the role of the dollar.
China calls for new reserve currency to replace dollar
By Jamil Anderlini in Beijing
Published: March 23 2009 12:16 | Last updated: March 23 2009 14:22
China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.
The goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies,” Zhou Xiaochuan, governor of the People’s Bank of China, said in an essay posted in Chinese and English on the central bank’s website.
Although Mr Zhou did not mention the US dollar, the essay gave a pointed critique of the current dollar-dominated monetary system.
“The outbreak of the [current] crisis and its spillover to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system,” Mr Zhou wrote.
Analysts said the proposal was a clear indication of Beijing’s fears that actions being taken to save the domestic US economy would have a negative impact on China.
“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC.
For now, China has little choice but to hold the bulk of its $2,000bn of foreign exchange reserves in US dollars and this is unlikely to change in the near future.
To replace the current system, Mr Zhou suggested expanding the role of Special Drawing Rights, which were introduced by the IMF in 1969 to support the Bretton Woods fixed exchange rate regime but became less relevant once that system collapsed in the 1970s.