China has $1.3 trillion of sovereign, foreign reserves, invested in the US dollar. It is the largest creditor in the world, a mantle that the US used to own, before it became the largest debtor nation.
China is over-exposed on the US dollar, as a result of which it is over-exposed the US policies, which of course are designed to serve domestic and not international or Chinese interests.
The People's Bank of China published a report saying, "When a national currency becomes the global price-setting currency for primary products, the trade settlement currency and the reserve currency, that national currency has great difficulty attending to both domestic monetary policy goals and the reserve currency needs of various countries," the report added.
"An international monetary system dominated by a single sovereign currency has intensified the concentration of risk and the spread of the crisis," obviously in reference to the US dollar.
"We need ... an international reserve system that ... can maintain a stable value over the long term."
The 1.3 trillion dollars flooding into the US in effect finance the credit-fuel US lifestyle. China and the US have been likened to two drunks staggering down the road propping each other up - China with its ready supply of dollars buying treasuries, and the United States using those 'loans' to buy ever more cheap Chinese manufactured products.
The Chinese, and indeed the other BRIC countries (Brazil, Russia and India) clearly want to diversify out of the US dollar.
Yet the amount of US Treasuries holdings by central banks around the world rose $115 billion in the past two months. The world is still addicted to the US dollar, and there is no immediate way for large creditors to move out of that asset class, or they will endanger both their current assets and their export trade, both of which are vital.
So where does China go from here?
Read the rest of the report inReserve Currency: China Says Move Beyond the US Dollar, Calls for a New Super-Sovereign Currency