March 29, 2009

China and the Dollar

In this piece by Robert Lenzner of Forbes, he discusses the recent report issued by the Governor of the People’s Bank of China, regarding the status of the USD as the predominant reserve currency of Central Banks around the globe.


The author refers to Zhou Xiaochuan’s "Reform the International Monetary System", issued by the Chinese central bank governor, where it’s suggested that a “super-sovereign” currency be created to supplant the USD, as the global reserve currency of choice.


"A super-sovereign reserve currency not only eliminates the inherent risks of credit-based sovereign currency, but also makes it possible to manage global liquidity… This will significantly reduce the risks of a future crisis and enhance crisis management capability."


Certainly, Mr. Xiaochuan’s suggestions are a powerful signal from the Chinese administration of their unhappiness with the current state of global economic affairs, but these actions can also be viewed as a flowering of Chinese participation and dare I say, leadership, in the global economic sphere. This point is completely missed by Mr. Lenzner, and instead he characterizes China’s proposal through an adversarial frame.


“Move over Ben Bernanke. Step aside Tim Geithner. There's a new power in international finance: Zhou Xiaochuan, governor of the People's Bank of China, the $2 trillion central bank of China. It has the tools and the financial interests to be the new power player on the global financial stage”.


A new power in International finance? Sure, I guess that’s a true statement if you have been asleep for the last 5 years or more.


“Zhou Xiaochuan--better learn how to spell it and pronounce it--threw down the gauntlet this week at the Obama-Geithner-Bernanke financial regime”.  


Get your pistol ready. It’s high noon, and there’s a new pistol in town from the East. You’ve been warned.


“His remarks can only be interpreted as a slap in the face of U.S. policy during the severe financial crisis that has swept the world”.


Colorful overstatement here by Mr. Lenzner, to be sure, but the fact that China is engaging the world with potential solutions, is a much better option than if they were expounding a policy of protectionist insularity. If China really wanted a battle at high noon, perhaps they’d of included a “Buy Chinese” clause in their recent stimulus efforts.

Nonetheless, it will be interesting to see how this story develops at the G20 meetings later this week.

No comments: