Quote:
China’s plan to end the dollar era
Published: March 24 2009 19:46 | Last updated: March 24 2009 19:46
Zhou Xiaochuan, China’s central bank governor, has delivered a powerful message to the world this week. He wants an end to the dollar era. This is not sabre-rattling. He has made serious proposals for a reserve currency to rival the greenback and he deserves a hearing.
During the 1997 crisis, Asia’s emerging market economies learnt a painful lesson: do not run out of foreign reserves. China, in common with many other Asian emerging market economies, built up towering mounds of foreign assets to give itself a backstop against future emergencies.
The People’s Republic has, however, over-exposed itself to the US, piling up dollar-denominated securities. In January, its stock of US Treasuries was about $739bn – a startling leap from $535bn in June last year. Yet Washington puts domestic economic needs before its creditors; the Beijing authorities now worry that possible future inflation could cost them dearly.
Chinese attempts to diversify into other currencies lost them money and efforts to buy higher-yielding US assets ended badly. It would be in China’s interests to have another safe reserve asset – but this does not mean that it would be against America’s. It would, of course, make it more difficult for the US to finance its deficits. But America should not want the world to be yoked so tightly to its willingness to generate demand. Such imbalances are at the root of this crisis.
As Mr Zhou says, a reserve supercurrency could be created through further issuance of the International Monetary Fund’s Special Drawing Rights – the IMF’s in-house reserve asset. To enable and encourage take-up, he proposes wider uses for the SDR and giving some surplus countries’ reserves to the IMF for it to manage. Married with other necessary reforms, this plan would also empower the IMF to act more flexibly. Good.
But China’s dollar-heavy reserve accumulation was not just insurance – it supported an aggressive, mercantilist trade policy. Beijing kept its currency weak to bolster exports and measured success in terms of how export-dependent it became. Mr Zhou’s proposal is useful and constructive – but China should still raise domestic consumption. It must not just replace its mountain of dollar assets with heaps of other currencies.
China has acted wisely in the recession, expanding demand with government spending. Beijing now wants to play an active role in reshaping the world monetary order. This outward-looking view should be welcomed. But China still has work to do at home.
Copyright The Financial Times Limited 2009
|
FT.com / Comment & analysis / Editorial - China?s plan to end the dollar era
my home internet connection has of late been squirrely and this is the sort of thing that is reported more outside than inside the american media bubble---but this is interesting.
apparently, when this idea was initially floated, geithner said it was interesting, which immediately set off a run away from the dollar on the part of currency speculators:
http://www.nytimes.com/2009/03/26/bu...t.html?_r=1&hp
but think about this.
first, in case anyone still actually believes that the current economic and ideological situations are not quite profoundly about contemporary politics, the political balance of power, the transnational order in general, this should put an end to that.
what's being proposed here is the end of the entire post-1945 socio-economic order.
it's the end of american empire, folks, at the symbolic level anyway....
but strangely, the ny times and other outlets are focussed on the proposals which would expand state power in the states, even as the power of the american state is coming under very fundamental question.
meanwhile, the disagreements with the european union over strategy--and these too are very basic disagreements, appears to be widening.
and then there's this:
Alarm as government debt auction fails | Business | guardian.co.uk
so for the moment:
what do you make of the chinese proposal?
the financial times edito i bit above makes arguments both ways, but puts aside most of the political ramifications of it--and the symbolic ramifications---to concentrate of the effects of loosening up transnational drains on dollar supplies.
what do you make of the international situation that's unfolding?
are you paying attention to it or not?
what do you make of the lack of international/transnational co-ordination of efforts to deal with this crisis?
personally, i think that this is far too big to be addressed by nation-states and that the failure to begin cobbling together some kind of consensus and institutional infrastructure may end up being THE mistake...but it's still a bit early to know this.
at the same time, if you step back from the tiny fevered world of american press coverage and look at the bigger picture, things do not at all look good.