China Pitches New Reserve Currency
You knew the time would come when the dollar would fall out of favor, but did you think it would happen this fast?
Actually, it’s not just the dollar that we’re talking about here. What China is proposing is leveling the playing field and including all world currencies in the reserve basket, which now only includes the dollar, the yen, the pound and the euro. So this wouldn’t amount to the monetary armageddon some were predicting since it would happen over a much longer period of time, but these adjustments would still have repercussions.
Analysts said the proposal was an indication of Beijingâ€™s fears that actions being taken to save the domestic US economy would have a negative impact on China.
â€œThis 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,â€ said Qu Hongbin, chief China economist for HSBC.
Although Mr Zhou did not mention the US dollar, the essay gave a pointed critique of the current dollar-dominated monetary system.
â€œThe 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,â€ Mr Zhou wrote.
Note the language there in that last sentence. The world was relying on the US to lead the way when it came to finance. And for a time it worked out, but our deregulatory policies threw the entire thing into a tailspin, and now world powers aren’t so trusting anymore…especially when we want to deficit spend (even though they’re doing the same thing).
More as it develops…