The question is, are we just hearing political banter or should we believe the Chinese? On March 13, Premier Wen Jiabao called on the U.S. “to guarantee the safety of China’s assets." The fact is that even just buying and holding US Treasuries, the Chinese are losing money as their currency, the yuan, has appreciated versus the U.S. dollar.
The obvious fact is that the Chinese are nervous holding U.S. dollars. Why shouldn’t they be after last week's $1 Trillion dollar printing party? I think many of us are nervous holding dollars and maybe rightfully so. But, let's be realistic. Maybe the U.S. dollar is the best of the worst. The European economies are in bad shape. They seem slow to react to the current reality.
Again, maybe this is sheer politics or maybe not. Central bank Governor Zhou Xiaochuan this week urged the International Monetary Fund to create a “super-sovereign reserve currency.”
On Tuesday, Obama responded with support of the U.S. dollar: “I don’t believe there is the need for a global currency.” Maybe it should be gold.
What is interesting is that Zhou didn’t call for the yuan to become the new reserve currency (which is not convertible). Its possible that through their central bank, the Chinese are slowly starting something of a process towards this goal. The Chinese signed a currency swap with Indonesia. This is in addition to currency swaps with South Korea, Hong Kong, Malaysia and Belarus. It’s also preparing for trade settlement in the Chinese currency with Hong Kong, Macau and the Association of Southeast Asian Nations.
As much as China is trying to create this new super currency maybe America will truly take a look at the Amero. That's is the name of a proposed North American currency union. This will confirm to all the conspiracy theorists their worst nightmare will be coming true. It was first proposed in 1999 by Canadian economist Herbert G. Grubel, around the same time as the introduction of the Euro in Europe.
Why can’t we just use gold? Seems a heck of alot more sensible.
What do you think?