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27
Oct
2009
Key currency RMB? E-mail
City Life - Blogs & Columns
Written by ND
China wants to get away from the dollar. The People's Republic suggested a new currency for the world. The new currency is to be driven and supervised - according to the Chinese head of the Central Bank - by the International Monetary Fund (IMF). This international currency should replace the US Dollar as the dominant currency in the world, explained the Central Bank of China CEO ZHOU XIAOCHUAN.

This way, the actions of independent monetary systems will cease to influence global currency trends. A good example of such a monetary system would be the US dollar, which is now at the center of the current global financial crisis. China repeatedly expressed a great concern  about the decline of U.S. currency, which would affect their dollar reserves.

"The outbreak of the crisis and its spreading to the entire world showed the fragility and the systemic risks of the current world monetary system", wrote ZHOU in an essay on the central bank's website.

"A centralized super-currency, which would be managed by a global institution, could be used to both create global cash flow as well as to control it", described ZHOU on FTD (Financial Times Deutschland/Germany, www.ftd.de).  This would reduce the danger of future crises and would expand the methods of managing those crises.

China is the biggest investor in the USA

China relies strongly on the US Dollar: The country holds the largest dollar reserves world-wide and during the past years has invested extensively in American currency.

The current financial crisis has led to strong doubts as to how the USA will deal with the economic crisis and how it will affect the Chinese currency reserves, estimated to be approx. 1.95 trillion dollars (For our  European readers: 1,95 billion dollars). Beijing confirmed, that it will in fact continue to buy U.S. bonds but at the same it expressed more energically than ever its strong doubts concerning U.S. politics.

The Fed Speeds Up its Printing Machines

The new barrage of financial aid programmes for the US economy caused concerns for an even larger increase in inflation. Further printing of dollars increases the amount of money in circulation and thus causes the greenback to lose value. This would slam down the market value of US government loans. China would then lose the vast majority of its US investments. The government in Beijing has repeatedly suggested that the YUAN (RMB) become the dominant currency in the Asia-Pacific region. Meanwhile, Russia has made similar overtures by touting the rubel as the new petrodollar.

Our opinion

The USA has trillions of debt which it might want to get rid of through inflation. And that perhaps may happen very soon. Only through inflation can the USA write off their debt. Despite record national debt, the European Union will still hold firmly to the euro. How will Europeans with their current weak economy keep their competitive  edge in world markets, when they face a reinforced U.S. economy.?

China has reacted far too late. Federal Reserve notes have long not been worth the paper they are printed on. Anyone with a cursory understanding of this subject knows that the dollar is administered by private banks and not even the U.S. president can influence the currency printers. Should we keep trading with worthless U.S. paper and give out our gold reserves and resources for the USD anymore? No. Only currencies which are backed up with gold or solid commodities will stabilize the market.


Additional information - Glossary

International Monetary Fund

The International Monetary Fund (IMF) is an international organization that oversees the global financial system by following the macroeconomic policies of its member countries, in particular those with an impact on exchange rates and the balance of payments. It is an organization formed with a stated objective of stabilizing international exchange rates and facilitating development. It also offers highly leveraged loans mainly to poorer countries. Its headquarters are located in Washington, D.C., United States. The current chief economist is Olivier Blanchard.

Greenback

Greenback is a term used for the U.S. Dollar.

Federal Reserve System

The Federal Reserve System (also known as the Federal Reserve, and informally as the Fed) is the central banking system of the United States. It was created in 1913 by the enactment of the Federal Reserve Act, largely as a response to a series of financial panics or bank runs, particularly a severe panic in 1907. Over time, the roles and responsibilities of the Federal Reserve System have expanded and its structure has evolved. Events such as the Great Depression were some of the major factors leading to changes in the system.

Our valuable Editor ND has been with us since Monday, 15 June 2009.

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