China Wants to Ditch the Dollar 54 comments
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Last night China escalated its criticism of U.S. fiscal and monetary policy. The governor of China’s Central Bank, Zhou Xiaochuan, called for a new reserve currency to replace the dollar. FT:
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…
Analysts said the proposal was an 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.
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.
In his Sunday interview, Obama noted there’s a limit to U.S. borrowing capacity. How ironic that he dodged the question of how close we are to reaching that limit. If China’s lack of confidence in the dollar is any indication, we’re very close indeed.
This is good news for folks who dislike the Geithner plan…and “stimulus.” China can badger us into balancing our books. If we don’t, they’d be in their right mind to punt Treasurys. And that means higher interest rates, which–as I’ve outlined before–will cancel out any positive impact from stimulus or bailouts.
Before long, the Fed printing press may be our only source of incremental debt finance.
Here is the statement from China’s Central Bank Governor.
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What they do want for the short term is more voting power in the IMF and better assurance from US goverment about their Treasuries and Agency bonds investments beyond mere words.
The dollar will gain strength as current account deficits continue to improve over the next year or two. Sorry China, but the US dollar is doing just what it should do...be the whipping boy and savior of the world economy...in it's role as world reserve currency.
China is a bubble on the end of an American bubble, a command economy, and a currency manipulator. Does anyone believe the G20 or IMF will take this proposal seriously?
It's intended, as I understand it, to help nations settle current account deficits. Like those the US suffers with who? China...so, thank you China for proposing a system to help the US settle it's account deficits with you. Here's an idea. Let your currency float! Buy US beef, especially since your grasslands are drying up.
Don't worry about the dollar, there are just as many reasons it won't fall as reasons it will. One thing not mentioned often is our current account deficits are improving.
I would appreciate everyone's thoughts on this, please reply.
On Mar 24 09:20 AM HaavBline wrote:
> At the same time of this proposal, China also announced they will
> continue to buy Treasuries. They know the US is unlikely to agree
> with Dollar's fate any time soon. Changes, if any, is going to take
> a long, long time.
>
> What they do want for the short term is more voting power in the
> IMF and better assurance from US goverment about their Treasuries
> and Agency bonds investments beyond mere words.
The interesting fact is that China appears to be supporting the IMF -- in contrast to many developing Asian nations who have a very sour taste in their mouths after the IMF and US driven efforts in the 1997 crisis.
On Mar 24 09:20 AM HaavBline wrote:
>
> What they do want for the short term is more voting power in the
> IMF
It seems that China may have learnt the lesson, and the talk of continuing to buy treasuries could be the cover for their gradual and cautious selling of treasuries to buy hard assets instead.
Why should they expect someone else to set this up for them and then manage that reserve currency for their benefit?
When you rely on someone else's currency, the tradeoff is that currency management decisions are made to support the sovereign country, not you. If China doesn't like that, they are free to propose their own currency as the new world reserve. They are, after all, the world's most populous country at nearly four times the size of the US and with significant manufacturing output.
Oh, I see. China wants to pay its workers in an artificially depressed yuan and receive payment for its exports in an artificially propped up dollar. China just doesn't understand why the US won't play along with this. It's just not fair, is it?
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On Mar 24 09:23 AM Asbytec wrote:
> Look, China loves not playing by free market rules. They are, of
> course, a command economy with a free market interface. So, what
> hubris they display demanding a world reserve bank run out of the
> IMF. They are the worst manipulators of currency markets.
>
> The dollar will gain strength as current account deficits continue
> to improve over the next year or two. Sorry China, but the US dollar
> is doing just what it should do...be the whipping boy and savior
> of the world economy...in it's role as world reserve currency.<br/>
>
> China is a bubble on the end of an American bubble, a command economy,
> and a currency manipulator. Does anyone believe the G20 or IMF will
> take this proposal seriously?
>
> It's intended, as I understand it, to help nations settle current
> account deficits. Like those the US suffers with who? China...so,
> thank you China for proposing a system to help the US settle it's
> account deficits with you. Here's an idea. Let your currency float!
> Buy US beef, especially since your grasslands are drying up.
>
> Don't worry about the dollar, there are just as many reasons it won't
> fall as reasons it will. One thing not mentioned often is our current
> account deficits are improving.
Salvador, oh you could not be more right. I have argued in other threads/forums that very issue. That's why I support Obama's push to build schools and develop a base of engineers and scientists so we can sell more than CDSs.
I think China knows that it is not (yet) equipped in terms of capital market infrastructure to host the world's reserve currency.
Frankly wouldn't it be better to have a global currency that was beyond the control of any one central bank and its printing press?
If China floats their currency, they won't be needing to buy all our treasury debt. Then what happens? I guess we could look forward to our myopic state and local governments selling off infrastructure to the Chinese to get hard currency.
Our government wants China to float their currency about as much as they want to find Bin Laden.
Simply fulfill the mandate of the Constitution and mint coins for anyone who brings metal to the mint. No need to abolish or start a new currency, just let them compete. When times are sweet, the metal loses its luster, and in times like these it gets its shine back. Just mint enough to keep up with demand for crying out loud! I'm pretty sure that gold and silver would be accepted anywhere.