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Location: essex ma
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here's a couple articles that give some background to the chinese call to go off the dollar as the reference currency:
Quote:
Fan Gang on the China-Dollar Conundrum
From the WSJ’s China Journal blog:
fan_gang_C_20090325080607.jpgAssociated Press
General Manager of the Bank for International Settlements Malcolm Knight and Fan Gang, director of the National Economics Research Institute, in 2006.
The pan-Pacific debate over the dollar’s standing as a global currency continues. On Tuesday, U.S. President Barack Obama dismissed suggestions raised by China’s central bank governor that the world needs a new international currency that can take the place of the dollar in international reserves. Fan Gang, a prominent economist and advisor to China’s central bank, watched Obama on CNN in his Hong Kong hotel room, but says he was hardly convinced.
“Of course” an alternative is necessary “in the long run, if we want to avoid the cyclical problems associated with the dollar standard,” Fan says in an interview with the Journal on Wednesday. Besides being director of China’s National Economic Research Institute, a nongovernment think tank, Fan sits on the monetary policy committee of the People’s Bank of China, which means his views carry some weight in Beijing.
Fan describes the dollar as a kind of transmission mechanism for risk. The current crisis, he says, may have begun in the U.S. and Europe, but because of the dollar standard, “the risk of highly leveraged institutions has spread to other countries.”
The onus therefore is now on the U.S. in particular to better regulate its banks and hedge funds for the sake of the global economy, he believes. Next, Fan says, “we should monitor capital flows, and monitor leverage, and this information should be reported to the countries where (institutions) are investing.”
International trade in goods is heavily monitored and regulated, says Fan. It therefore makes no sense that “you have a regulated real market and an unregulated financial market.”
Of course, China is pretty good at keeping a close eye on capital flows. It allows only limited convertibility of its currency, the yuan, and tightly restricts foreign investment in the country’s capital markets. Fan, who asserts that “Chinese prudence has paid off,” says capital controls are “better for developing markets.”
(Later, speaking at a Credit Suisse investment conference here over lunch, Fan reiterated his line about prudence paying off. Privately, one critic in the audience quietly scoffed. China happily financed the U.S. trade deficit by buying low-yielding Treasurys for years, he said. How prudent was it to offer cheap vendor financing to a big customer with a lot of debt?)
Fan says while China is eager to keep its currency stable, there is pressure to let the yuan fall — “not just domestic pressure, but regional pressure,” as other Asian currencies weaken, making them more competitive. Rather than let the yuan fall against the dollar, he suggests that China should make reference more to the other currencies in the basket it uses to set the yuan’s exchange rate. “Eventually, China’s currency should be related to other currencies, not just the dollar,” he says.
Fan worries that the Fed’s quantitative easing is raising the risk of dollar inflation and devaluation, which “is a concern not just for China but for everyone.” He also believes monetary problems will fuel more “China bashing” in the U.S. from members of Congress that have previously railed against China’s currency policies. “In the future, you will see, when the dollar devalues, these senators will come back,” says Fan. Interestingly, Fan’s excitement level seems to peak when he’s asked why China is choosing to speak up now about the dollar.
“We have been talking about the risk of the dollar and dollar devaluation for a long time,” he says. “We have been talking about U.S. causes behind the imbalances in the trade deficit. No one listened. This is a time to get noticed.”
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Fan Gang on the China-Dollar Conundrum - Real Time Economics - WSJ
and this from china view:
Quote:
Dollar's dominance to be challenged at G20 summit
English_Xinhua 2009-03-26 21:01:45 Print
Special Report: Global Financial Crisis
BEIJING, March 26 (Xinhua) -- As the global financial crisis continues to bite hard, the dominant position of the U.S. dollar is under widespread doubt.
That has prompted major economies to issue a series of international financial market reform proposals challenging the U.S. currency.
Discussions at the upcoming G20 summit in London also may herald a weakening of the U.S. dollar's status and a far-reaching change of the global monetary system.
Incredulity over U.S. leadership of the world's finances has been accumulating ever since the spreading economic turbulence was linked to the American government's financial policy failure and lax control of its domestic financial market.
The unease was aggravated when the U.S. government decided recently to strengthen its bailout efforts by turning on the "cash-printing machine," which will inevitably further depreciate the dollar and undermine its reserve currency status.
Calls for a reshuffling of the international financial and currency systems are gaining momentum not only from the euro zone, but also from developing nations such as Brazil, Russia, India and China -- known as the "BRIC" countries.
Zhou Xiaochuan, China's central bank governor, published two articles earlier this week, pointing out defects and systematical risks in the current international currency system. Zhou's articles also call for creative reforms to improve the system.
Zhou said the ongoing financial crisis is a testimony to the inherent deficiencies of the world's current monetary system, and proposed to create a super-sovereign reserve currency as part of the reform.
In a clear reference to the U.S. dollar, Zhou said the desirable goal of the international monetary system is to "create an international 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."
The Special Drawing Right of the International Monetary Fund has the potential to act as a super-sovereign reserve currency, he said.
Following Zhou's comments, Chinese Finance Minister Xie Xuren called for a full-scale reform of the global financial system to diversify international currencies, improve regulation and give developing countries a bigger say in economic decisions.
With the same expectations of the G20 summit, Russia has announced a similar call for the introduction of a super-national reserve currency as part of the country's proposal to reform the international monetary and financial system at the summit.
Russia said the bill has gained support from the other three "BRIC" members as well as from South Korea and South Africa.
Analysts said leaders of the euro zone are harboring higher ambitions and will make full use of the G20 summit to exert their appeals as the dollar's loss of confidence is leaving more leverage for the already strong single European currency.
"Euro zone countries regard the financial crisis as a crucial opportunity to shake the core status of the United States in the world monetary system," said Zhang Ming, a scholar with the Chinese Social Science Academy's world economics and politics institute.
On the reconstruction of the world monetary system, the United States will suffer from a huge blow from the European countries, especially France and Germany, which may come up with some strategies aimed at undermining the dollar and strengthening the euro, Zhang said.
Analysts said the G20 summit will be a combat field for the United States, the euro zone and rising economies concerning the world monetary system reform.
Although the establishment of a new reserve currency is a long-term goal, what is in sight is a mounting threat to the dollar's long-lasting dominance.
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Dollar's dominance to be challenged at G20 summit_English_Xinhua
so what do we have here?
first off, there is a problem with the position occupied by the dollar, which has mostly to do with the fact that the international currency regime was created in the early 1970s as a transposing of the bretton woods arrangement. the problem is that the dollar is both inside and outside the system, an instrument for both acting with and acting upon it. so long as the us was in a position that was more or less imperial, there was no necessary contradiction in it---but this is no longer the case.
the proposal to go off the dollar as reference currency comes from several directions, most of which are outlined in these pieces: as a an instrument within the currency system, the dollar reflects (indirectly) the fluctuations in overall economic position of the united states; as reference currency, the dollar reflects the political position of the united states after world war 2. the argument appears to amount to: so long as the former did not undermine the latter, it was acceptable for the system to shift as a whole in ways that aligned with the shifts that took place to the currency as a player within the system.
i'm not sure i'm explaining this well--maybe someone else can do better....feel free.
you could say that the alignment of the united states as arbiter of the stability of the post-73 modalities of capitalist organization was a function of historical factors and inertia---and power---but now the power has been slipping away (thanks in significant measure to the glorious bush administration), the economic position is clearly unstable and the "leadership" that has come out of the united states, particularly since the reagan period, has (finally) been shown to have been entirely insane---even as there have been beneficiaries within that insanity--and china principal among them. so the political situation is now such that china is sweating getting hammered on the bonds etc. that it purchased in huge quantities (which floated the irrationalities of neoliberalism to a very significant extent)---so self-interest combined with opportunity (political, ideological and economic weakness on the part of the united states) explains the proposal....
the proposal itself is not to substitute the yuan for the dollar, but rather to move to a diversity of references.
how would this work?
one problem this would create is a multiplaction of media across which values could be expressed or measured. this is not insumountable by any means---but it does indicate at the symbolic level that a VERY different global captialist arrangement is beginning to take shape than has been the case, and that at the very least the period of the imperial united states is ending.
personally, i don't think this is a bad thing----but to deal with it will require a serious rethinking of how the american economy is organized, which has to be of a piece with a reorientation of it's direction. the older systems are probably finished--i wonder if you'll see the consequences of this shaking out in agriculture, in the undermining of the system of dumping overproduction that we quaintly called "free trade"---which would mean that the centralized monocrop heavily subsidized model is heading for serious serious trouble--because it was a function of american POLITICAL power that this model was able to inflict its irrationalities on the southern hemisphere...
that's a little precis....but i could be wrong.
what do you make of this?
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