China Ups the Ante
By Larry Doyle on March 24, 2009 at 12:08 AM in China, Current Affairs, Economy, Foreign Affairs, Foreign Policy, Sense on Cents (Larry Doyle blog)
In ten days, the leaders of the G-20 will meet for the most highly anticipated financial conference since Bretton Woods in 1944. In a bold and aggressive move prior to this conference, China’s central bank called today for the replacement of the U.S. dollar as the international reserve currency.
I have written about the tension in U.S.-Chinese relations over the last few months. The essence of this tension is captured in the Prisoner’s Dilemma and A Question of Honor.
Make no mistake: the timing, tone, and substance of this message so close to the start of the G-20 is another major shot across our bow. The ramifications for a change in this international reserve currency are enormous, both politically and economically. I recommend reading the following article from the Financial Times:
China calls for new reserve currency
By Jamil Anderlini in Beijing
Published: March 23 2009 12:16
Last updated: March 24 2009 00:06China’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.
(Release: November 13)
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In the campaign Obama made some statement that amounted to it’s time for America to step back and let other countries take the lead.
Sounds harmless at first, but really …
Every country in the free world should be striving to be the leading country of said free world. Nobody running to for POTUS should say hey, it’s time for our country to be second place instead of first.
The world needs the U.S. to always strive to be our best. Otherwise countries like China will be all too happy to fill the void.
Almost nobody noticed when Obama told that 7 year old during the campaign that we weren’t that great of a nation like we used to be. He believed we aren’t that great anymore and is doing his part to make his belief reality. Welcome to Obama’s world and welcome to what he thinks of us as a nation and welcome to his future for us. Change doesn’t seem to cover as a descriptor for it. Thanks for writing about this topic… I had briefly mentioned this and thought it was the most important item among all those items that was being lost in the outrage over AIG et. al. We are always going to be having “crises” with this administration. It is the way this administration operates. But, let’s not miss the larger picture. There is still “hope” but only if we curtail the “change”.
Overstating the importance of this statement from China is not possible. It is the bell being rung on the hill that is a announcing the end of the American era.
I hope Paul Krugman gives his take on this.
This scares the holy crap out of me. WTF is going on?
I apologized to you on the other thread (times they are a changin’) and clarified my comment — hope you will read. Best, Ani.
Ani, I read it. I love your posts and I’m sorry too. I think it’s cool that we agree to disagree on some things in the past…but let’s all bond together and try to save what’s left of our country. Thanks for the post. XXX
I’m with you. Thanks very much for writing back. I don’t want to demonize any one side. I think that is part of how we got into this mess — “____ Derangement Syndrome” — fill in the blank with the president or candidate or party of your choice.
I just wish people would wake up and vote based on the issues not personality or drinking whatever the particular party kool-aid happens to be. My hubby and I are now happy to be Independents. We will never again vote a straight party ticket. The individual is going to have to sell me on his or her policies, character and record. Period.
Ani, thanks again. I soooo wish that party system would go away. It has caused sooo many problems. I am and Indie too, actually and I think that’s the way to go. People who voted “party first” gave us Obama. Period.
And I was really hoping we could somehow save America…
We should learn Spanish and Portuguese and get to work on it at once.
Or maybe Chinese?
I read this article earlier this evening. Put a chill right up my spine. We’re heading over the cliff. Hope everyone has their lifejacket on. Wonder if it will help??
I’m beginning to develop headline fatigue. Just when I think it cannot get much worse, it does.
When China starts to lecture America on being financially responsible and keeping our word, they are showing that they are the parent…the omniscient one. They see us as weak as our leader. Sigh.
We have a Campaigner-in-Chief, but no Leader.
This is yet another skirmish in the economic+ war that the US and China have been waging for years. We need to wake up to the danger of a fundamentally anti-democratic regime attempting to gain ascendancy at our expense.
Unfortunately, our helmsman is a clueless naif, right when we need some real smarts and wisdom.
And sadly, smart for the rest of the world. They will take our billions of dollars dispersed by AIG, but they are looking for their better interest and watching Weary Barry from across the pond must be a jaw droppng daily occurence.
Linda Too: your analysis shows exactly what is wrong with the U. S. We have lost the skill of looking to our own interest for everyone in our country as the big businesses try to augment their already obscene fortunes by pandering to foreign nations. They’re biting us all in the butt.
Doom and gloom will not help anybody. Its not like the USA will disappear over night. Yes, you wont’ be able to go into Walmart or Target and buy crap from china for less then a dollar. You will have to pay what it really costs to produce stuff. So we will start making more stuff in the USA. What is wrong with that. It might be the best thing that could happen to us. Yes it will be tough to adjust to the fact that Walmart and stores like it will go out of business but is that really that bad. And its not like China will be very happy if 25% of it GDP disappears over night. But then again they were playing this game as well. What did they think will happen once they accumulated the first trillion USD and were manipulating their currency so they could accumulate an other trillion. It is already to late for them and they know it. Inflation will hit in about 18 months and the reserves they have will be worthless. If they were smart they would move that money into equities as soon as possible.
[...] No Quarters flatly says that China has upped the ante. [...]
Never fear. Hillary is on the job. This is her area, it’s foreign relations. I see she’s addressing the problem of drug violence on the Mexican border when no one else in the administration is talking about it. All Obama can say is that somehow we have to find a way to keep all these illegal people in the country (their relatives voted for him–that was the trade-off). The Mexican government is complaining that America is the problem (how novel). Americans’ are buying illegal drugs. Unfortunately, they are. But when I read stories about drug cartel kidnappings in the U. S., the drug gangs are kidnapping illegal hispanics who owe them money. But, by all means, let’s keep them all in the U. S.
Thank goodness, huh?
Thank you.
The only thing Weary Barry is attempting to deal with, and he’s bankrupting our country.
He pandered to them big time…with the assistance of Billie Boy Richardson. Banking on ignorance and voters not paying attention. That’s how he pulled it off. He said anything for the moment, even when it totally contradicted anything he said or did before. He had the media covering for him to not bring this up or question him.
Unlike the media’s non stop hammering Hillary-like for possibly stretching her having to dodge bullets. She did, not exactly during a shooting, but to avoid that shooting as plans had to be changed so she DIDN’T have to try to dodge those bullets. And they surely didn’t repeatedly air the Military that was traveling with her and stated what those conditions were.
The media got to prove they could influence elections again, even if they are dwindling in their share of market.
Speaking of media…and acting…Weary Barry’s one of favorite actors he likes to copy, Denzel Washington, Man on Fire with Chris Walken and Mickey Rourke. Exactly the scene we’re talking about with the drugs and crime in Mexico. IN CREDible movie. Denzel always amazes me that he perfects his roles and movies. IN TENSE.
Greetings, yes it is sad what is happening in America and across the world, but we are just human beings in this world, we didn’t create it and the invisible powers doesnt deal with flesh and blood (Eph 6). I say that to say this; America is only in power for a 400 year time period, around 2012 her time is up and it is time for a One World Order to be in place in Europe(The Holy Roman German Empire). The Creator is mustering up the Nations to battle the Children of Israel and that is how YAHWEH can show his infinite power. So please read the book of Daniel, and it tells how Yahshua the Messiah will fight the nations in the battle of Meggido..Armageddan..