China ‘Super Currency’ Call Shows Dollar Concern

[AnotherNormal]

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Should China get its wish ?

[Lohengram]

I've read that Russia has been saying similar things, hard to say how things will play out, need to just wait and see with this one. As for "should" they, well you should only do something if it will lead to the objective you want so "should" only counts when you're aiming for an objective, so should they? well, what do you want to achieve?

[Night Runner]

Eh... There is no apostrophe in the possessive "its." :P And that news is over a day old... None of our creditors like the fact that the fed keeps printing more money, effectively devaluing the dollar and the foreign currency reserves of other countries. However, there's not much they can do about it, since USD is the world economy's standard. Basically, in this case China is just flexing its muscles and expressing their opposition to our current fiscal policy. Not much will change, but the market might react on this news and go down...

[AnotherNormal]

I've read that Russia has been saying similar things, hard to say how things will play out, need to just wait and see with this one. As for "should" they, well you should only do something if it will lead to the objective you want so "should" only counts when you're aiming for an objective, so should they? well, what do you want to achieve?

China knows what they want to achieve :)

I agree, wait and see.

[Lohengram]

Eh... There is no apostrophe in the possessive "its." :P And that news is over a day old... None of our creditors like the fact that the fed keeps printing more money, effectively devaluing the dollar and the foreign currency reserves of other countries. However, there's not much they can do about it, since USD is the world economy's standard. Basically, in this case China is just flexing its muscles and expressing their opposition to our current fiscal policy. Not much will change, but the market might react on this news and go down...

That's the kind of complacency I like to see "the dot com’s are a bubble? hahahaha; house prices can go DOWN as well as up? hahahaha; Central banks outside the US might sell their US T's and USD if the US keeps devaluing the USD and going into more debt? hahahaha". Ah bubble mania, do people ever learn?

[AnotherNormal]

Not much will change, but the market might react on this news and go down...

What I see is change, not lack of.

[Night Runner]

Lohengram: ah, a fellow Schadenfreude connoisseur. :)

AnotherNormal: it's all just talk - and empty talk, at that. Everything is too complex and interconnected to be changed arbitrarily from one monetary standard to another.

[Solus]

The Chinese with their 700 billion dollars worth of US treasury securities have every right to be worried and ask for new solutions. They're protecting their investment. As for yuan, I'm not so sure. Personally I find this to be a great chance for the euro to strengthen its claim to become the world's reserve currency (though it's admittedly a long way from reaching that goal).

[AnotherNormal]

AnotherNormal: it's all just talk - and empty talk, at that. Everything is too complex and interconnected to be changed arbitrarily from one monetary standard to another.

There has already been change, a change in attitudes. They are looking for a better place to invest, this is change.

[JohnDoe]

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Should China get its wish ?

This is largely posturing.. if you want to sell all of your exports to the US to fuel your economy, your going to have to store a bunch of USD. If China was to start insisting that they store money in things not USD, then the price of Chinese exports goes up contracting their economy as we buy less (if I understand the argument correctly).

[Lohengram]

AnotherNormal: it's all just talk - and empty talk, at that. Everything is too complex and interconnected to be changed arbitrarily from one monetary standard to another.

You do realise that not so very long ago the British Sterling was the global reserve currency and dominated as much in its time as the USD does now? To think that the global reserve currency cannot realistically change is simply not true.

@JohnDoe it would not necessarily contract their economy, it would raise the price of their exports to the USA but it's long been a popular fantasy that China grows purely off exports generally or the US in particular. Economies can restructure and there're signs China is becoming more internally focused and more focused on regional economic ties. Exports have never accounted for more than a quarter of China's economic growth.

[JohnDoe]

You do realise that not so very long ago the British Sterling was the global reserve currency and dominated as much in its time as the USD does now? To think that the global reserve currency cannot realistically change is simply not true.

@JohnDoe it would not necessarily contract their economy, it would raise the price of their exports to the USA but it's long been a popular fantasy that China grows purely off exports generally or the US in particular. Economies can restructure and there're signs China is becoming more internally focused and more focused on regional economic ties. Exports have never accounted for more than a quarter of China's economic growth.

A quarter of economic growth is pretty damn big. If it suddenly became cheaper for the US to make things at home rather then in China, China would have a serious economic problem.

[Visum]

It is only a matter of time that the dollar loses it's position. The issue really for China to take the position is that they will be hurting as bad as the US if the dollar would quickly lose it's value. However, the world is still in bed with the dollar, so they will need to protect it from "rampant" inflation. Slow change is most likely how it will occur, IMHO. I have considered a US neo-economic industrial age coming.

[Night Runner]

You do realise that not so very long ago the British Sterling was the global reserve currency and dominated as much in its time as the USD does now? To think that the global reserve currency cannot realistically change is simply not true.

Of course it can change. It just won't happen overnight. We should be fine for the near-term future. As for the later on - well, I heard that Chinese has a pretty easy grammar. *hint hint nudge nudge* In the worst case scenario, I still have my Russian citizenship. :wiseguy:

[eternaltriangle]

The response should be NO NO NO, from a standpoint of US interest. Because the USD is the reserve currency in the world, the US has a large impact on the monetary policy of the rest of the world. If the US raises interest rates, for instance, other countries must follow suit or face depreciation. When the US does this in response to a bubble in the housing market, for instance, other countries are compelled to raise their interest rates, although that might not be the best move for their domestic economies.

Some kind of joint US-Chinese-Euro currency would reflect the joint economic realities of the major economic players. Of those players, China's influence would grow, as its economy continues to rocket ahead. This would lead to a global monetary policy inappropriate to the US or EU - China's economic circumstances (rapidly developing vs. mature industrial economy) make them poor partners.

When forming any common currency area the key question is whether economic cycles within the area are likely to be synchronized. If not, they are a bad candidate for having a common currency (whether international or domestic) because any monetary decision will benefit some, while screwing many others. The status quo may not be the best for the world, but it is best for ma pa and apple pie.

[SirJac]

The status quo may not be the best for the world, but it is best for ma pa and apple pie.

That is essentially it. The USD is only being propped up because of its reserve currency status. Moving to a new international reserve currency would signel the beginning of the end of the USD as the consequences of poor fiscal choices over the decades would no longer be muted by the international community.

[LaoTzu]

China is owed so much by the US, that of course they are concerned about the USD.... it's sort of like the difference of being paid back $1000 or $100,000 :P

Perhaps it's time for a global reserve? A new invention? Backed by Gold?
(Gold's always been real 'money')

Call it a Gold-Credit or something?

[elsdfr]

If China don't get some kind of protection from loose US fiscal policy then why wouldn't they panic and dump their USD and T-Bills? Sure they might not panic but either way the USD could devalue severely for a number of reasons in the coming months so I doubt it's the last of the political posturing we will see.

Further to that if the USD devalues without the help of China then there could also be the change where people demand to be able to buy oil in Euros or something else. I'm not sure what makes the USD the Reserve but this wouldn't help. Although now I think about it, it probably has something to do with geopolitical power. Yay for free trade! :/

Plus there is no central control on Currency markets, just some countries trying to prop their currency up. If or when the carnage ensues it's going to be quick and have a devastating effect on equity and commodity markets not long after.

Oops, hate to sound like Mr Doom and Gloom (still), but I don't think this has played out completely.

[Night Runner]

Perhaps it's time for a global reserve? A new invention? Backed by Gold?
(Gold's always been real 'money')

Short of a complete worldwide financial meltdown, I can't envision a scenario in which any country would be able to go back to the gold standard. Ever since we did away with it, things got a lot more complicated. Can't get the genie back in the bottle...

If China don't get some kind of protection from loose US fiscal policy then why wouldn't they panic and dump their USD and T-Bills? Sure they might not panic but either way the USD could devalue severely for a number of reasons in the coming months so I doubt it's the last of the political posturing we will see.

We're all in this together. If China panics and starts dumping the USD and T-bills, it'll set off a chain reaction and panic all over the world, and their USD-based assets will lose their value very, very fast. It's a giant simulation of the Prisoner's Dilemma.

[RBM]

Steven Levine has an interview (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.) with Joseph Stigllitz who calls (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts. e.aspx%3Fid%3D1067&ie=utf-8&oe=utf-8&aq=t&rls=org.mozilla:en-US:official&client=firefox-a) for new currency:

The central idea is that the current system of depending on a single currency and the political and economic management of that currency is volatile. It’s inequitable because poor people are lending to the U.S. at low interest rates. In a global economy, you need a global reserve system, and that’s what we’ve proposed.

[elsdfr]

I'd be calling for a new currency too if I was staring at Zimbabwee like inflation :p

[Visum]

It sounds more like China wants a world currency, such as the SDR (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.).

Reform the International Monetary System

Zhou Xiaochuan (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.)

[minipig]

I come from China.
In my opinion,the Chinese government have chosen the right attitude to face the dispointed and angry people in the country.
In fact, Chinese do not have enough strength to do so.If RMB and US dollar fight now, China and the United States will be hurt,maybe some other country will be very happy.So,if wait ,we will find that China won't try to do this really.
Obama should be able to recognize this.What Chinese government want to get from US is just a good diplomatic language which can help them to made the Chinese people calm and confidence. Harmonious is the most important thing in China.

[jesse]

The bloomberg.com article linked shows that China is beginnin to assert itself as it has demonstrated decades of impressive economic growth and development. Having multiple reserve currencies is something I tend to find as a cornerstone of robustness and it would not necessarily be a bad thing. Monopolies of any sort typically only concentrate control to a select few and if we were to assume that the biggest player, in this case the US Dollar were to take a severe nose dive in value, it would cause problems domestically AND send shockwaves in every market as well.

Alternatively China's government could only be hedging its bets because it is worried about the US Dollar and perhaps more importantly, whether the US government can start to cough up deductables on their debt. A third option which Financial Times (To view links or images in this forum your post count must be 2 or greater. You currently have 0 posts.) reports is that China is trying to match or even replace the dominance of the US Dollar. It is understandable since China continues to have plenty of room for growth and I doubt any nation would let an option to raise their profile at the international level.

What we are going through at the moment has the signs of being the end of an unsustainable era in free trade. I think that too many economies have become too focused only on a particular specialty, be it for example China, Japan, Germany and others probably relying too much on exports for their income. The US on the other hand is suffering somewhat because they are producing less and less themselves since they can easily move manufacturing to countries where work is much less stringently controlled and priced. Place the majority of your economic powerhouses into the same basket and have it fall, you'll regret it since you make yourself vulnerable by not having other outlets for economic growth.

These are very interesting times because the world economic landscape is changing and so are the balances of power. Those who can change and find opportunities will profit the most from the stormy conditions.

[AnotherNormal]

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An interesting related article.

[RBM]

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An interesting related article.

Are you a regular reader of Krugman ?

I'm not. This is 'conventional wisdom' in my reading circles:

The bottom line is that China hasn’t yet faced up to the wrenching changes that will be needed to deal with this global crisis. The same could, of course, be said of the Japanese, the Europeans — and us.

I also muse that this crisis probably still has years to run.

My qualifications ?
I'm an old fart who depends on the financial health of Mainstreet so that I can maintain my own financial health. The odds are piling up against me, it seems.

[phej]

Perhaps it's time for a global reserve? A new invention? Backed by Gold?
(Gold's always been real 'money')

Call it a Gold-Credit or something?

There's not enough gold in the world to be a reserve currency. Since the supply of gold is roughly fixed, we would be in constant deflation as the developing world becomes wealthier and wealthier.

Besides, other than being shiny and durable, I have never understood why the Austrian economists lust for the gold standard. The only good reason that I've seen for the gold standard is that it prevents the bad policies that you see with fiat money: governments debasing the currency to ease debts. That's actually an easy problem to solve: split fiscal and monetary policies apart. Give monetary control political freedom. Unfortunately, the firewall between the two in the U.S. has been eroding for awhile.