China calls for new reserve currency

[I AM NOT THAT GUY 5,715]

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.

In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.

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.

China has little choice but to hold the bulk of its $2,000bn of foreign exchange reserves in US dollars, and this is unlikely to change in the near future.

To replace the current system, Mr Zhou suggested expanding the role of special drawing rights, which were introduced by the IMF in 1969 to support the Bretton Woods fixed exchange rate regime but became less relevant once that collapsed in the 1970s.

Today, the value of SDRs is based on a basket of four currencies – the US dollar, yen, euro and sterling – and they are used largely as a unit of account by the IMF and some other international organisations.

China’s proposal would expand the basket of currencies forming the basis of SDR valuation to all major economies and set up a settlement system between SDRs and other currencies so they could be used in international trade and financial transactions.

Countries would entrust a portion of their SDR reserves to the IMF to manage collectively on their behalf and SDRs would gradually replace existing reserve currencies.

Mr Zhou said the proposal would require “extraordinary political vision and courage” and acknowledged a debt to John Maynard Keynes, who made a similar suggestion in the 1940s.

http://www.ft.com/cms/s/0/7851925a-17a2-11...00779fd2ac.html

Edited March 24, 2009 by Mister_Bill

[Niels Bohr 72]

So, does this mean that China owns the US? Wow.

[dalegg 143]

So, does this mean that China owns the US? Wow.

Yeah, you better think about that the next time you hear someone getting on your back about buying Chinese made products instead of American made. This is like eating your wife's apple pie at Thanksgiving instead of your mother's.

[Niels Bohr 72]

I like Chinese food and imports. As a matter of fact, the Asian community namely Chinatown get many of their food from imports.

The US just have a problem controlling deficit spending. It all started with Roosevelt's New Deal. Ever since, deficit spending have been very popular.

[dalegg 143]

I like Chinese food and imports. As a matter of fact, the Asian community namely Chinatown get many of their food from imports.

The US just have a problem controlling deficit spending. It all started with Roosevelt's New Deal. Ever since, deficit spending have been very popular.

We call that Mastercard.

[Niels Bohr 72]

So, that means everytime we used MasterCard we are essentially giving China more power. Interesting...

Even many of the local engineering professors don't even know that. Something new for me too.

[Ban Hammer 13,716]

So, that means everytime we used MasterCard we are essentially giving China more power. Interesting...

Even many of the local engineering professors don't even know that. Something new for me too.

of course not, they are engineers!

[spookyturtle 9,466]

I like Chinese food and imports. As a matter of fact, the Asian community namely Chinatown get many of their food from imports.

The US just have a problem controlling deficit spending. It all started with Roosevelt's New Deal. Ever since, deficit spending have been very popular.

And I bet if you look back to Roosevelt's era, you'll find that the deficit spending was Obama's idea, even though he wasn't born yet. There, that should make VW happy.

[fozzie 41]

China can f**k off! When they start letting their currency be controlled by the market like every other major industrial nation then they can have a say in such things. Until then they should just pipe down!!

Edited March 24, 2009 by fozzie

[stangguy 0]

So, does this mean that China owns the US? Wow.

Not even close, of the total US National Debt only about 28% is held by foreign companies, nations, and individuals and China only holds about 40% of that. That equates to about 10% of the total debt being held by China. The largest holder of US debt is the US government. The US Government owns about 50% it .

[MsMariah 0]

And then to whom would the other 22% of US National Debt be owed?

[stangguy 0]

The indivdual states hold about 5% as well as about the same amount being held by mutual funds. Another 4% is held by pension funds. The rest is held by banks, insurance companies, savings bonds, and private investors.

[Niels Bohr 72]

I see. Youtube has alot of teaching videos on finance. Very interesting...I learned alot from this thread.

However, I do know the US borrow money from itself. But, just didn't know how much foreign countries have held US debt.

Edited March 24, 2009 by Niels Bohr

[Mrs.J06 4]

China can f**k off! When they start letting their currency be controlled by the market like every other major industrial nation then they can have a say in such things. Until then they should just pipe down!!