China hints at Dumping the Dollar

[arnab221]

http://www.businessweek.com/globalbiz/content/ mar2009/gb20090325_40r7723.htm?chan=top+news_top+news+aind ex+-+temp_dialogue+wlith+readers

The mere hint of the Chinese dumpoing the dollar woould lead to a catarophic fall in vakue of the Dollar . Nervous investirs might start selling the Dollar from today itself.

"Just over one week before President Barack Obama and other world leaders meet in London for a summit focusing on the global recession, China is making clear it wants a greater say in managing economic policies worldwide. The latest blast from Beijing: a call by China's top central banker to dump the U.S. dollar as the world's most important currency. People's Bank of China Governor Zhou Xiaochuan, in a paper released on the bank's Web site on Mar. 23, called for a new "super-sovereign reserve currency" to replace the current reliance on the dollar. The goal, Zhou writes, is to "create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run."

Not surprisingly, U.S. officials aren't welcoming the idea. Speaking on Mar. 24 at a congressional hearing in Washington, Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke both said they categorically oppose the change.

And pretty much everyone agrees it's not going to happen. In his paper, Zhou called for using the International Monetary Fund's "special drawing right" (SDR) currency, now used mainly for accounting purposes by the Washington-based organization, and pegged to the euro, pound, yen, and dollar. To succeed, the new currency would also have to be adopted worldwide by private companies for international trade transactions, a tremendous challenge. "Denominating trade and investment is almost always done in terms of one currency—and making the SDR work like that is almost impossible to imagine," Stephen Green, research chief of Shanghai-based Standard Chartered China wrote in an e-mail to BusinessWeek.

Seeking More Say
How then to read Zhou's roiling of the financial waters? It's most likely a shot across the bow signaling China's intention to have a greater voice in world financial affairs. When he attends the G-20 opening on Apr. 2, Chinese President Hu Jintao is almost certain to call for expanding China's voting rights at the IMF. Presently the members of the European Union have a combined 32% of voting rights and the U.S. has 17%, compared with only 3.7% for China and 1.9% for India. Beijing, too, may offer to purchase up to $100 billion of any IMF-issued new bonds, a People's Bank of China vice-governor suggested in a press conference in Beijing on Mar. 23.

By calling for a super-sovereign reserve currency, Zhou signals China's dissatisfaction with the global economic pecking order. As well as demonstrating Beijing's new more assertive role in the world economy, Zhou's proposal to replace the dollar may also signal China's intention to move more aggressively to diversify its foreign exchange holdings. Zhou's paper contains a "hint of a threat that the U.S. should not take the dollar's privileged status for granted," Mark Williams, international economist at Capital Economics in London, wrote in a Mar. 24 report.

The central banker's controversial proposal is the latest in a series of moves signaling Chinese irritation with the U.S. For instance, Premier Wen Jiabao on Mar. 13 told reporters he was "worried" about the value of China's massive dollar holdings. Standard Chartered Bank (STAN.L) estimates that China, the world's largest holder of U.S. debt, held $1.45 trillion in U.S. securities at the end of 2008, out of a total $1.9 trillion in foreign reserves. As the Obama Administration starts spending $787 billion to boost the U.S. economy and another $1 trillion on its cash-strapped banks, Beijing is worried inflation in the U.S. could erode the value of its dollar holdings. During the Mar. 13 press conference broadcast live across China, Wen called on the U.S. to take efforts to "maintain its good credit, to honor its promises, and to guarantee the safety of China's assets."

Despite Zhou's bold proposal, Beijing also knows that any rapid move toward a new reserve tender could backfire for China. That would erode the value of China's dollar holdings and likely would lift the value of the yuan, China's currency, making the country's already beleaguered export sector even less competitive. "To the extent that its concern is that dollar weakness will undermine the value of its existing reserves, it clearly has no desire to precipitate such a shift by moving out of dollar assets," wrote Williams of Capital Economics. "Zhou is well aware that the dollar's position is secure for now." Indeed, the same day Zhou called for the new reserve currency, China's State Administration of Foreign Exchange issued a statement that it supported the dollar and would continue buying U.S. Treasuries.
"

[sriramkalyan]

Yes let then dump dollars .. and buy roubles that will be good deal ..
China will never do that .. just trying to scare Obama..

[sanju]

Look, China is posturing before G-20 submit. They want bigger say in the world economic affairs and want them to be heard. So they are just making noise to attract some attention before the submit. This is regular posturing. Its like Russia saying, I have 5000 nuclear bombs to destroy this planet 30 times, and if I am not heard, I will explode them all in Russia, c'mon, get real, what will it cost to talk some sense.

[validIV]

This was long overdue. If China doesnt push for it now, another country or alliance of nations will. The SDR is a much better alternative than dependence on any single nation's currency, USD or otherwise.

[sriramkalyan]

I dont know which country's economy is best than US. I can bet on US, not on Europe or any other country. China needs some place to bank its trillion dollars. I think its doing right in buying US treasuries. and will keep doing it...
Chinese economy is based on exports & not on consumption. If china has big stimulus ..people will get jobs & save .. thats it ..

Apart from that , they are pumping cash into defence. China has border issues with most of the countries around it. Also power projection. I am worried some elements in Chinese republic may be supporting Terrorism against democratic countries. I am sure Terrorism emanating from Pak on India is due to China's support ...

[Marphad]

Originally Posted by sriramkalyan

I dont know which country's economy is best than US. I can bet on US, not on Europe or any other country. China needs some place to bank its trillion dollars. I think its doing right in buying US treasuries. and will keep doing it...
Chinese economy is based on exports & not on consumption. If china has big stimulus ..people will get jobs & save .. thats it ..

Apart from that , they are pumping cash into defence. China has border issues with most of the countries around it. Also power projection. I am worried some elements in Chinese republic may be supporting Terrorism against democratic countries. I am sure Terrorism emanating from Pak on India is due to China's support ...

Second your post for terrorism support. Its a business for some !

[validIV]

Originally Posted by sriramkalyan

I dont know which country's economy is best than US. I can bet on US, not on Europe or any other country.

That is the point China / Zhou is trying to make. The world currency should not be tied to any single country or its lone economy.

[polapragada]

Originally Posted by validIV

This was long overdue. If China doesnt push for it now, another country or alliance of nations will. The SDR is a much better alternative than dependence on any single nation's currency, USD or otherwise.

I will agree with you 50% dude...

Yes world in need for new non biased Currency....
No, if Chaina is not pushing no one else can... every body else is afraid....

Cheers