Tuesday, March 24, 2009
Calligraphy on the wall
China calls for new reserve currency
Financial Times: 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...
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.
Image: Chinese characters for 'disaster'; source here.