China Urges US Dollar Replacement Currency
http://news.bbc.co.uk/1/hi/business/8120835.stmChina's central bank has reiterated its call for a new reserve currency to replace the US dollar.
The report from the People's Bank of China (PBOC) said a "super-sovereign" currency should take its place.
Central bank chief Zhou Xiaochuan has loudly led calls for the dollar to be replaced during the financial crisis.
The bank report called for more regulation of the countries that issue currencies that underpin the global financial system.
"An international monetary system dominated by a single sovereign currency has intensified the concentration of risk and the spread of the crisis," the Chinese central bank said.
The dollar fell after the report was released. The US currency dropped 1% against the euro to $1.4088, and declined 0.8% versus the British pound to $1.6848.
Mr Zhou caused a stir earlier this year when he said the dollar could eventually be replaced as the world's main reserve currency by the Special Drawing Right (SDR), which was created as a unit of account by the IMF in 1969.
The PBOC said in the report that not only should the world adopt the SDR, but that the IMF should be entrusted with managing a portion of its member countries' foreign currency reserves.
"To avoid intrinsic shortcomings in using a sovereign currency as a reserve currency, we need to create an international reserve currency that is divorced from sovereign states and can maintain a stable value over the long term," the PBOC report said.
It also issued some veiled criticism of the US policies, saying that one of the major issues was that it was difficult to balance the needs of domestic politics with the requirements of being the world's reserve currency.
"The economic development model of debt-based consumption is most difficult to sustain," the PBOC said.
Russian President Dmitry Medvedev recently joined Mr Zhou in saying it was time to consider an alternative benchmark currency for international debt.
But Russian finance minister Alexei Kudrin then said "it's too early to speak of an alternative".
As critical as I am of alot of US policies...
God, I hope the dollar remains the world's reserve currency.
The day the Yuan becomes the world's reserve currency, is the day this world comes to an end. China's opportunism in this crisis is not to be trusted, as they expect to come out of it even stronger than they are.
Putin/Med. need to stop all these games with China, they will lead to no good.
China doesnt need a replacement currency, it needs a replacement currency it can control.
Last edited by Russianlynxy; 06-28-2009 at 03:42 PM.
Maybe the Zimbabwean dollar...
Wait, what?
Originally Posted by Russianlynxy
Much of the noise coming out of China, the other BRIC countries and the Middle East right now is mere political brinkmanship. The domination of the USD will continue for at least another 10-20 years. Before the USD, the Pound Sterling was the world's reserve currency and even after America outpaced Great Britain in the last century as the supreme economic super power, it took another 20 years for the USD to completely usurp the Pound. So not to worry about any Chinese led currency hegemony any time soon. It does no one any good to collapse the USD overnight, not without massive dislocations to the global economy.
Nevertheless, the USD must eventually die. Russia is now also slowly bailing out of the USD and who knows what Japan is going to do with it's massive USD reserves. The yuan will not become the next reserve currency. Instead, China has openly advocated a basket of currencies and commodities controlled by the IMF. No one nation should have a monopoly on printing free money and risk destabilizing the world's economies if it should fail. The US has had a free ride for way too long at the expense of the rest of the world. Anyways, China does not want the Yuan to be a reserve currency and become the next debt inflated gulag economy. The days of fiat currencies are numbered, that experiment has been an epic fail.
Last edited by fooj; 06-28-2009 at 05:50 PM.
US economic and military dominance is not going to end anytime soon.
While US global doorkicking capabilities appear to be maintaining their unipolar zenith, US economic clout and US Dollar hegemony is quite possibly past it's zenith and will likely begin to slowly drop off into a more multipolar economic climate as a direct result of insane monetary/fiscal policy and societal ADD.
I'm still thinking the same as before:
multi-currency, multi-commodity basket
And I don't see it happening overnight....but the next 1-2 decades will likely see some pretty substantial economic realignments that will impact heavily on 1st world folks.
We are only partway through this whole process.
I think the multi-currency, multi-commodity basket is the most equitable solution. The proportionately stronger economies, i.e. stronger currencies would hold a proportionately higher influence in the basket, and since they would all trade against one another, no one stakeholder holds an unfair advantage, all backed partially by solid stuff, like gold and oil.
I see US military dominance declining lock step with the USD. As the USD deleverages, so too will the US military industrial complex for better or for worse.
It's interesting to note, that some in Japan are thinking of abolishing cash altogether! The Japanese economy is so up sheit creek, that they foresee the need for negative interest rates in the future just to keep their heads above water, and to do that, some have suggested that they abolish cash. Insane! It's no longer a fractional reserve system, but a negative reserve system. FDR confiscated gold during The Great Depression, but cash?!? Wow!
China has intentionally undervalued its currency (and continues to do so) by as much as 40%.
By undervaluing its currency (and through similarly manipulative public policy means) it has created an artificial global advantage for its goods and services, just as the Japanese did prior.
On a simplified basis, the fast growing sale of the artificially cheap Chinese goods and services is done in dollars - creating massive demand for new dollars which will be gladly printed (see why soon) and sent off to China.
That inflow of dollars into China can be stored in a Chinese bank with US dollar accounts, or sent back to the US to be invested in US dollar denominated securities (think bonds).
All that money flowing into bonds makes it increasingly cheap to borrow money. In fact, the dollar you borrow tomorrow will cost you less than the dollar you bought yesterday. By the time you factor in the inherent value of the goods and services you're actually buying - in many cases you were paid to acquire the good. This is the effect of an undervalued currency, and it allows the US to grow its debt and defer its payment.
Were the dynamic to reverse it would present a natural opportunity to generate the monies necessary to repay US debt, at great expense, disruption and debt to the Chinese.
The bottom-line here is the US dollar has likely won the battle for currency preeminence for the next 50 years. Any statements the contrary by Zhou are flights of fantasy. The RMB, EUR, baskets... they will not supplant the dollar. They may try, baskets may be traded, but dollars will regin supreme and everyone else can thank a rising Japan and China .... and, of course, suck it.
The pegged yuan and large USD reserves which fueled the speculative emerging markets bubble has now put China in a massive dollar trap. Sooner or later China will have to diversify itself out of the USD and find other means of growth. The current export-centric model is unsustainable. China will sooner or later have to inflate it's currency and I think the Chinese know that.
Once the global appetite for fueling US debt wanes so too will the desire to finance the global carry trade with US greenbacks, then the USD will eventually collapse, in my opinion. The problem is, the RMB, Euro, petrodollars, SDRs, bilateral trade agreements, or what have you, nothing currently out there is a worthy replacement for the USD and a new Bretton Woods agreement would take decades to hammer out. These sorts of changes take at least a generation to effect.
x2 -- the nations of the world have credible reasons as to why theyre sick of the USD
I've always found America's economic policy toward China slightly awkward. It's almost like US corporations are only planning for their own short-term existence. Looking at the US economy right now, almost no companies have taken any crisis precautionary action prior to the financial meltdown. Even though it's forecoming had been forecasted in the course of the past several years.
More importantly, instead of creating jobs at home, which are indeed needed, manufacturing, and now even high-tech R&D is being outsourced to China, some in India too.
Basically instead of creating a symbiotic working atmosphere within the US, American companies are feeding a nation that cannot stop breeding and with growing territorial and economic ambitions of it's own. IMHO this is a very dangerous policy in the long run.
A Zimbabwean dollar would turn a whole bunch of Chicom's into millionaires!!!!
I just wish they'd redesign the bills so we had some nice looking currency. It's like an entire Nation still wearing leisure suits...
Hey, if Jay-Z has started waving these around in his music videos, and Giselle Bundchen wants to be paid only in these, then this is the only type of money I'll be accepting from now on!
Seriously though, I'll accept any kind of denominations.....I'm one poor mofo
Didn't Germany's modeling Goddess retire already? lol
On topic: I don't think the EURO will be displacing the USD any time soon.
Hey, you never know...when it first came into being on as an electronic currency it only had 17% of the foreign reserve market cornered. 10 years later it's got 26.5%. I think in the future you'll see a basket of currencies, with the major ones being the Euro, the Dollar, and the Yuan, and a bunch of smaller ones like the Pound, Yen, and Ruble.
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