China proposes one world currency

It's been rumoured, it's been dismissed as junk conspiracy theory. But we are starting to see some of what has been predicted come true. If you don't know what an SDR is, you will soon. The International Monetary Fund and the World Bank are being positioned. Stay tuned.



MARCUS GEE

From Tuesday's Globe and Mail

E-mail Marcus Gee | Read Bio| Latest Columns
March 31, 2009 at 4:16 AM EDT

Throughout its 30-year climb out of poverty, China has taken excruciating care not to alarm the rest of the world with its growing might. China's policy, said the architect of its rise, Deng Xiaoping, should be to keep a low profile, not take the lead, watch developments closely and keep its abilities hidden.

But with the global economic crisis threatening its dreams of glory, China is starting to assert itself on the world stage. In recent months, Chinese leaders have blamed the United States for the global crisis, warned Washington to maintain a sound dollar, and even mused about creating a new world currency to replace the greenback.

Though guarded, China's remarks have created such a buzz that they threaten to overshadow Thursday's meeting of the G20 major economies in London. Some commentators are saying that the meeting that really matters is the G2: the United States and China. U.S. President Barack Obama and his Chinese counterpart, Hu Jintao, are to meet for the first time on the edges of the summit.

"Never before has China had such influence," said University of Alberta scholar Wenran Jiang. "When we see hints that China might get out of the U.S. dollar, world stock markets react."

Prof. Jiang added: "When we see talk that more stimulus might be coming from the Chinese government, the whole world pays attention."

China did not seek the spotlight. It has been thrust into it by the economic crisis. China's is the only major economy that is still experiencing growth, though the pace is down by half since last year, and the rest of the world is still hoping that Chinese dynamism will help pull the world economy out of the ditch.

The economic crisis has also thrown doubts on the free-market model of capitalism championed by the United States, making China's state-guided model look better by comparison.

"China is saying, 'It is no longer time for us to be lectured by you guys. Your model failed. We have to put in something that works better, both in our own interest and for the whole world,' " Prof. Jiang said.

China, he said, is in a much different position than it was in the years of Maoism, when a poor and isolated country railed against Western imperialism. Today, "China can say no, and they have the financial power to back it up."

China recently surpassed Japan to become the largest holder of U.S. Treasury bonds, securities issued by Washington to help pay for its rising debts. Flush with the proceeds of its exports to overseas markets, China has accumulated nearly $2-trillion in foreign currency reserves, about two-thirds of it held in dollars.

Understandably, Beijing now worries that the value of those holdings will erode as the United States tries to borrow and spend its way out of recession, potentially fuelling inflation and causing a decline in the U.S. dollar.

"It is a pity the U.S. is still trying to borrow its way out of a crisis that occurred basically because it has borrowed too much," said a stinging commentary in the official China Daily.

Chinese Premier Wen Jiabao, for his part, said Beijing was "a little bit worried" that a discounted dollar would wipe out a great deal of hard-earned Chinese wealth. He said he hoped the United States would remain "a credible nation," an equally sharp barb when aimed at the world's only superpower.

Zhou Xiaochuan, head of the People's Bank of China, went further when he made a bold proposal to replace the dollar as the world's reserve currency, substituting a synthetic currency created by the International Monetary Fund called the SDR (Special Drawing Rights).

Most analysts say the idea has no legs, given the complexity of replacing the dollar. But investment banker Kenneth Courtis, former vice-chairman of Goldman Sachs Asia, said the fact that China felt confident enough to make it is a sign of how power is shifting from one side of the Pacific to the other.

"Through a period of transition, which will take some years, a new equilibrium will emerge which will reflect a different balance of power which is less politically, economically and ideologically American centric," he said in an e-mail.

Apart from making its view on the dollar known, Beijing is pressing for a bigger say in the International Monetary Fund, though it is so far balking at putting more money into the fund.

Originally posted by uzless
It's been rumoured, it's been dismissed as junk conspiracy theory. But we are starting to see some of what has been predicted come true. If you don't know what an SDR is, you will soon. The International Monetary Fund and the World Bank are being positioned. Stay tuned.



MARCUS GEE

From Tuesday's Globe and Mail

E-mail Marcus Gee | Read Bio| though it is so far balking at putting more money into the fund.

A more detailed article....


China's united currency idea divides nations
Last Updated: Friday, March 27, 2009 | 2:44 PM ET Comments40Recommend59CBC News

China wants to create a new currency for international finance reserves to help deal with the global credit crunch.

Now, some economics watchers see that notion as self-serving, others as timely. But whatever the majority opinion of China's grand idea, the single currency theory certainly isn't new.

In fact, China's idea — to make a new standard for international financial reserves — revives a debate that can be traced back at least a half a century.

Back in the 1950s, if someone in China wanted to buy an American bond, that person would ship a sliver of gold — or a piece of paper representing the shiny yellow metal — to the United States to pay for the financial instrument.

Fast forward two decades and the American dollar had cemented its superiority as the currency of choice among international traders. After all, people were only interested in holding the cash of a country that was stable, which, in the middle of the last century was really a club of one — the United States.

Now, the U.S. greenback, much like the American economy, has fallen into disfavour with foreign investors and governments.

Still, with the United States remaining the biggest economy on the planet, many traders probably would hesitate before agreeing to dump their dollars as the international payment standard.

"The benefits (of a new currency) are far from certain and this is certainly not a "shovel-ready" project," said TD Bank senior economist Richard Kelly in a recent commentary on the subject.

Debating a single coin
To be clear, China is not proposing a single currency that individuals and companies in most countries would use for domestic transactions à la the European Union's euro.

Instead, Zhou Xiaochuan, the governor of China's central bank who floated the idea in March, was suggesting an international standard for foreign currency reserves. That is the cash of other countries that central banks keep on hand to trade with and invest in other nations.

As well, governments hold such reserves as a way of controlling the value of their own currency.

As of the end of March 2008, Canada held slightly more than $43 billion U.S. in foreign reserves, more than $39 billion in the form of various securities and debt instruments and the remainder in deposits.

These reserves, for instance, allow Ottawa to manage the value of an undervalued Canadian dollar by using the foreign cash to buy the Canuck buck on the global currency market.

Right now, many countries hold a large portion of their reserves in U.S. dollars. The thinking is that the American greenback will keep its value against the cash of most other countries, be it zlotys, reais or Congolese francs.

U.S. economic slump
But that was before the global credit crunch.

Now, $2.5 trillion in American taxpayer cash later, and fears of an impending crash in the U.S. currency — not its stable value — is top of mind among foreign exchange types.

"If there is any doubt as to how the forex markets feel about the Fed’s plan to purchase over $1 trillion in U.S. government bonds, consider that the dollar just recorded its worst weekly performance in 24 years, while the euro simultaneously recorded its strongest week since its inception in 1999," wrote Adam Kritzer recently on his well-followed foreign exchange blog.

And China is eyeing its own holdings of $1 trillion in dollar-dominated assets, as well as its much-maligned domestic currency, and thinks a new world cash standard might be the answer.

Thinking outside the box
So, Zhou wants to expand the importance of an obscure financial bit of accounting known as special drawing rights, or SDRs.

SDRs have been around since the time of the post-Second World War Breton Woods agreements, which established institutions such as the International Monetary Fund and World Bank and basically defined the global system of international finance.

But these SDRs were not really very important, used basically as a way for countries to figure out their contributions to and withdrawals from some international institutions.

The value of these drawing rights now is based upon a basket of four currencies — the Japanese yen, the euro, the British pound and the dollar.

The Chinese government proposal would expand the number of currencies involved in valuing the SDR and establish a settlement system for international transactions based upon the new currency.

American 'no'
U.S. Treasury Secretary Timothy Geithner, among others, has pooh-poohed the Chinese idea, arguing it would be a bad time to inject more uncertainty into the world economy.

Washington might have more practical reasons for wanting to maintain the status quo, experts said.

For one thing, President Barack Obama is trying to re-establish the U.S. economy's pre-eminent position among economic powers. That effort likely would be damaged if the American buck were downgraded by the financial community.

In addition, the use of the U.S. dollar as an international means of exchange also provides some extra demand for the greenback. Such popularity provides a floor shoring up the value of the dollar, which, in turn, removes additional pressure to raise interest rates.

China wariness
Of course, the Chinese government has its own agenda, namely that American trillion-dollar stimulus plan.

Many analysts believe that all that new cash will hike the U.S. inflation rate once the American economy makes a recovery. If that prediction is accurate, the Chinese U.S. dollar holdings would lose their value, likely forcing Beijing to dump its American bonds and other securities.

Worse still, any hit to the international value of the U.S. currency would boost the worth of China's yuan. But a stronger Asian currency also would result in fewer Chinese exports, a situation which could damage that country's trade-dominated economy.

Originally posted by uzless
A more detailed article....


China's united currency idea divides nations
Last Updated: Friday, March 27, 2009 | 2:44 PM ET Comments40Recommend59CBC News

China wants to create a new currency for international finance reserves to help deal with the global credit crunch.

Now, some economics watchers see that notion as self-serving, others as timely. ...[text shortened]... exports, a situation which could damage that country's trade-dominated economy.

Rev 16:-

12And the sixth angel poured out his vial upon the great river Euphrates; and the water thereof was dried up, that the way of the kings of the east might be prepared.

13And I saw three unclean spirits like frogs come out of the mouth of the dragon, and out of the mouth of the beast, and out of the mouth of the false prophet.

14For they are the spirits of devils, working miracles, which go forth unto the kings of the earth and of the whole world, to gather them to the battle of that great day of God Almighty.

15Behold, I come as a thief. Blessed is he that watcheth, and keepeth his garments, lest he walk naked, and they see his shame.

16And he gathered them together into a place called in the Hebrew tongue Armageddon.

17And the seventh angel poured out his vial into the air; and there came a great voice out of the temple of heaven, from the throne, saying, It is done.

18And there were voices, and thunders, and lightnings; and there was a great earthquake, such as was not since men were upon the earth, so mighty an earthquake, and so great.

19And the great city was divided into three parts, and the cities of the nations fell: and great Babylon came in remembrance before God, to give unto her the cup of the wine of the fierceness of his wrath.

20And every island fled away, and the mountains were not found.

haha, the chinese will eat us all up😀

i will betray and get free kung fu lessons and the little red book when the war comes.

The Chinese government holds around 800 billion USD worth of dollar-denominated US Treasury Debt. They are just worried that quantitative easing will hurt the dollar. This is a warning to the US officials that they should worry about the value of the dollar, not actually a concrete proposal.

Everybody knows that the IMF doesn't have the necessary support and credibility to actually implement this.

Originally posted by Palynka
The Chinese government holds around 800 billion USD worth of dollar-denominated US Treasury Debt. They are just worried that quantitative easing will hurt the dollar. This is a warning to the US officials that they should worry about the value of the dollar, not actually a concrete proposal.

Everybody knows that the IMF doesn't have the necessary support and credibility to actually implement this.

Originally posted by Metal Brain
Give it a couple years.

Originally posted by Palynka
The Chinese government holds around 800 billion USD worth of dollar-denominated US Treasury Debt. .

Originally posted by uzless
The article states,

"China recently surpassed Japan to become the largest holder of U.S. Treasury bonds, securities issued by Washington to help pay for its rising debts. Flush with the proceeds of its exports to overseas markets, China has accumulated nearly $2-trillion in foreign currency reserves, about two-thirds of it held in dollars."

Originally posted by Palynka
Not all of that are US treasury bonds, but that just serves to reinforce my point anyway. Your article needs to check its math, though. At one point they say 1 trillion in USD-denominated assets and in your quote they say 2/3 of 2 trillion held in dollars. A 333 billion imprecision?

Anyway, here is the US treasury data from where I got my number.
http://www.treas.gov/tic/mfh.txt

Originally posted by uzless
I think the difference is that your data ends in January and it is now April.

Originally posted by Palynka
I doubt it. What's the source for your article? Doesn't it bother you that they contradict themselves on the amounts I mentioned above?

Originally posted by uzless
the sources were two different news websites.

CBC.ca
theglobeandmail.com


I will conceed that sometimes newspapers and news outlets (CBC) don't always get the numbers correct.

Originally posted by Palynka
No problem, just realized that they cite a blog for one of their figures. Like I said, the exact figure doesn't really matter as long as China faces large potential losses from a USD devaluation.