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China calls for new global currency to replace dollar

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taniwha The US financial position is very salvageable and promptly - I do it for a living and would love the opportunity to fix it up. Japan and China's investments are denominated in US dollars. The US is only obliged to credit a US bank account in their names with US dollars to repurchase its bonds. It is up to Japan and China to use those US dollars to purchase other currencies. If the US dollar weakens, obviously they will get less in their own currencies. But where do you think they would move their funds too? The US is awesomely powerful now. It has had the military technology in place for years. Like in WW11, they will soon find the money to fund a serious war if they had too. Depending on the size of the conflict and the level of risk to the US would determine which weapons are used. They have thousands of nuclear weapons and have proven in the past they will use them to protect their soldiers. The US can turn it manufacturing power up very quickly. It would acquire what it wants from Canada and Australia by trade. It has free trade agreements with both. Yes, the US weakest point is the manner in which it has conducted its financial affairs for the past 30 years. You only need one financial intellectual (financial realist)to step in and fix it. I did it in Australia in 1991 - it took me two hours to provide the strategy. We are now the most prosperous country on the planet. I love a financial crisis. I faxed President Obama at the Whitehouse, but got no response. There is the real problem. No one over there thinks it is possbile for someone to fix it. Like you I will stay tuned until they at their weakest point. Then I might get a call. Cheers and thanks for your responses.

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Brunobear

That was all a bit of a wish list.

If China and Japan wanted their money back the US could pay both back almost immediately. But China and Japan don't want their money back because the know that the US is the safest place on earth to warehouse such large sums of public money.

How do you propose the US would be able to do that, should the request be made? In US dollars? The Chinese and the Japanese and any other lenders to the US would most definitely not want US dollars back. Think about it a moment. Why would they be calling for immediate payment anyway, if not because they wanted payment before the US dollar nosedived below the ground. So perhaps they would prefer to be paid in Chinese yuan and Japanese yen? After all those currencies aren't much more or less stable than the euro for example. I think most people here would tell you the US hasn't got that much currency in stock ready to release to those countries.

In any event, there is such a thing as nominal dollar value versus real dollar value.

For those of you who fantasize that the US is weakened let me just remind you that the US military is head and shoulders above any other military force in the world.

True, but only for as long as the US has the means to fund such a military force. Once the US economy collapses such a force will pretty much have the means only to administer a military dictatorship within the US just to keep the lid on the local population. The real military is going to then be in those countries who still have the means to fund military R&D, and pay the salaries of the officers.

The US is resource rich, much richer than any other nation or even the EEU.

Totally meaningless statement. What resources are you talking about here? The US has plenty of coal sure. It doesn't have plenty of oil or gas, not in comparison to "any other nation". Sure it has reserves, but they are there largely to ensure a military ability should most of the sources of both oil and gas to the US suddenly cut off the supply.

...it has the intellectual elite of the world at its call.

Yeah, right. Well, where were those "intellectual elite" when the US needed them? Advising the successive Administrations and Wall Street how to plummet the nation into a war in Iraq, and the US as well as the rest of the world into a financial collapse. The rest of those intellectuals were either hiding behind their desks in their ivory towers, or retiring to South America before the storm.

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Great, Nessie!

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Well it's won for the money

two for the show

three to go bankrupt

now go cat go

but don't you

step on my greenbacks, Hu.

You can do anything

but lay off of my greenbacks, Hu.

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Can´t blame them. With the Obama crew printing new dollars like crazy, and asking the Chinese to buy more governments bonds in that monopoly currency to fund all these idiotic Obama government problems, they must must be royally plssed.

It really is quite bizarre to see how the US gets away with this cam (for now), because the monkey money are printing is (still) the world reserve currency.

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Interesting comments by all. Lets be realistic! China has about US$600 billion and Japan US$600 billion invested in the US$12 trillion US Federal public debt (Government Bonds. As a simple Australian, and given the way we do arithmetic here, that is 2 plus 2 = 4 still, it means China owns about 5% of the US Treasury bonds and Japan about the same. That means the other 90% are owned mainly by people we call Americans, the US Federal Reserve and the US Social Security Department. Yes, theoretically, the US may be perceived to be bankrupt for the sake of the argument, but in reality whilst the US can continue to service its US$450 billion annual interest on its US$12 trillion public debt, from whatever means, it is not insolvent.

If China and Japan wanted their money back the US could pay both back almost immediately. But China and Japan don't want their money back because the know that the US is the safest place on earth to warehouse such large sums of public money.

The world has become very accustomed to undertaking virtually all international trade in US dollars. Most major trade contracts are expressly written in US dollars because it has been proven to be the best and safest option, compared to other tried alternatives.

The real problem for the US Government and President Obama is the historic dislike by Americans to pay the full required measure of taxation that the Country needs. For several decades they have been robbing their Social Security Department of its US$4 trillion in reserves and borrowing modestly from various others including China and Japan to fund Federal Government expenditure.

The US could get itself out of its predicament fairly promptly if it increased the overall level of income tax on its 140 million workforce and on its corporations as it did in the 1940's to pay for WW11.

The US dollar is going to remain the main international currency for a very long time and the US still the safest haven for large sums of money. They have strong laws to protect property rights and a powerful court system to back it up. Something you cannot say about most countries except for those who law flowed from mother England, such as Australia, Canada, Britain, New Zealand and of course the good old USA.

For those of you who fantasize that the US is weakened let me just remind you that the US military is head and shoulders above any other military force in the world. The rest look puny except in some cases for numbers in uniform. When push comes to real shove, the US military technology, means that men in enemy uniform would be soon vaporised if the US chose to, whatever the numbers.

The US is resource rich, much richer than any other nation or even the EEU. Not only does it have abundant natural resources but it has the intellectual elite of the world at its call. What natural resources it does not have it can obtain readily from its closest ally on earth, Australia. Or another close ally in Canada. Canada has enough oil in "oil sands" to last the US at least 300 years and it can be extracted with new techniques at little more than what it cost Saudi Arabia to get it out of the ground.

What the US needs at the moment is support from its close allies to sort out the financial problems that have emerged. My country, Australia, will be the first to assist and we have the cerebral skills to ensure the US financial system is as strong as our own. President Obama is the right man, at the right time with the right allies to support him.

I am proud to say the Australians love the US and Americans. We love to travel there and work and holiday in the US. We love Americans coming to our Country. They are the most kind, well mannered, cerebral, industrious and caring people on the planet and have been the greatest force for good of all time. Aussies also have great respect and affection for China, Japan and all the nations in SE Asia as well as elsewhere.

We are all in this together and we must from hereon ensure that we conduct our economic affairs for the greatest world good.

What many people don't realize is that the economy is similar to the four seasons, you get a winter, a spring, a summer and an autumn. You have to learn to handle all seasons. God bless all of you!

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believe it or not, it's a good idea to have a global currency, whether or not the folks at home dislike it. the u.s. can't consume all the world's exports, we're just not that fat or rich enough anymore.

a world currency would in fact shelter the system from any one shock, and is a step forward in the right direction. but other countries have to stop the 'export to you-know-who' mentality. it's time they shored up their own markets, especially the e.u. and japan, both laggards in really liberalizing their markets.

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taniwha - Now you are spinning ideological banter with now no substance while I on the other hand am going off of facts over the last 50 years or so. You contradict yourself when you wrote

Actually, where do you get your facts from? If you look up this thread you will find I have posted a few sources. So far as the "spinning" goes it looks like you are doing that.

The reality of your own ideology is staring you down every time you go look at a stock indices. This whole thread is based on the very outcome of ideological banter spun for the past three decades. Consider calls by Milton Friedman ideologues for more an even more free 'free market', if that is possible. Consider they are still urging that right now, even critics of Obama and his administration's bailouts urge, no shriek for the powers that be to free up the almighty 'free market'. If you want evidence of alternatives decrying the bailout strategy, and urging Washington to simply let Wall Street sink or swim, just go watch the Peter Schiff channel on youtube to see what I mean.

Anyway, who do you suggest are the voices of sanity, a step apart from 'ideological banter', would that include Allen Greenspan? Paul Krugman? Wait up, no need to go to those EXTREMES... No, not at all, because you have Timothy Geithner, Ben Bernanke, and Henry Paulson to extoll the virtues of where the free market will take us AFTER the resurrection of American capitalism. And yes, its American capitalism they mean to restore, above and before any other localized variant.

To me you are saying that we all need each other to see our way out of this mess yet if China deems it so can bring by decoupling with the U.S. devastation to the dollar and essentially bring the U.S. economy with it. Am I reading correctly?

No. You are 'reading' like there is a disconnect in your cognitive zones, like you depend on JT to supply the 'facts'. Here's a shock for you then - and I presume you haven't bothered to read my post past the bits you have quoted here - China wants the US to get a handle on the situation. China knows there can be no decoupling without destroying their own economy. China is considering that maybe a bit of local destruction now is worth a lot less in the future. It is a gamble with no wins but they are looking at degrees of catastrophic loss! China's thoughts are in fact no different to the attitude of many countries who will meet with the US at the G20 in London. I've already mentioned some of those above.

BTW, my day is going just fine thank you. I am getting hungry though! I will go stand in line for my daily rations soon ;)

Hope the rations were worth the wait.

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BTW, my day is going just fine thank you. I am getting hungry though! I will go stand in line for my daily rations soon ;)

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taniwha - Now you are spinning ideological banter with now no substance while I on the other hand am going off of facts over the last 50 years or so. You contradict yourself when you wrote; “

Nations cannot de-couple one from the other. The US economic marvel is gone, finished.”

And then the following paragraph starts;

“The struggle to keep the US economy afloat depends entirely on the will of China and actually India and Japan to continue to hold US financial assets. That's it. That's all there is.”

To me you are saying that we all need each other to see our way out of this mess yet if China deems it so can bring by decoupling with the U.S. devastation to the dollar and essentially bring the U.S. economy with it. Am I reading correctly?

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While you acknowledge "the extreme times", I would reflect on the "we" somewhat. Extreme times are just everyday reality for many many countries in the world, and have been for quite a while.

[And here I am not referring to, say, infamously unstable areas such as the are found in parts of South America, Asia, the Middle East, and on the African continent (and that by no means covers the lot), AND also completely disregarding the reasons most of these areas are unstable - these are the nations begotten by the war victors and as such created to serve the needs of the west, not the real inhabitants, AND many of them still bear the stamp of a colonialized past]

You know if China goes the same way as Japan, as you put it, "sliding down the same slope", then the US goes too. You are continuing to avoid the obvious. Nations cannot de-couple one from the other. The US economic marvel is gone, finished.

The struggle to keep the US economy afloat depends entirely on the will of China and actually India and Japan to continue to hold US financial assets. That's it. That's all there is. There is NO intrinsic value to the US dollar. Its real value expired when it was taken off a gold standard. That was the Bretton Woods System, now defunct. That was a political decision taken by the Nixon administration because since the US had created all those new markets following world war 2, and they were doing pretty well, more dollars were needed than they had the gold to value them by. The US dollar has been falling in real value as measurable by gold at least, for decades! The US is bankrupt. I have no idea where you get your seemingly unassailable faith in the US dollar from. It seems to me more like blind adherrence to a doctrine derived from a belief in the indomitability of the US itself.

Have you ever actually reflected on the fact that the capitalist system of social and economic organization is just that? A system! And as such, it like any system natural or man made can and will get sick, and maybe to the point where it cannot be revived.

When a system that no longer works is continued with, the entire machine/body dies. That is all a bit perfunctory, but make no mistake, dictatorship in the US is just around the corner. It will be the only way to contain the chaos that ensues when society breaks down along with an economic collapse. The false expectations of so many in people in the West, delivered by capitalist ideology, can be paralleled with the continuing belief by Americans in 'the American Dream'. People are not going to like finding themselves in the middle of a depression, one with no way out. The ruling elites will turn to war, and that, unfortunately will be where we are all going to be heading unless the world can de-couple itself from the zombie that capitalism has now become.

That was a bit of a rave. But hey, I'm having a great day thanks. Hope yours is too.

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Sorry, the above reply was for you taniwha. Have a great day!

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Of course the outcome of all of this is yet to be seen. But “The result of chaos will be the installation of a military dictatorship in the US. Would you call that a stable government? Because that is what is on the horizon”. Come on, we are talking about the United States of America not Colombia, Chechnya or Myanmar. The steps that are being taken are in many ways extreme, but these are extreme times. Our GDP shank a bit than expected in 2008 but it was still at $14.58 trillion! With Japan at $4.8 and China at 4.2 following (these are rough but pretty close). So I think the U.S. and it’s dollar will be around for a bit longer. I do agree with you that nothing lasts forever but America is a very resilient force and consider this; China also seems to be hinting that it may be sliding down the same slope as Japan and relying a bit to much on it’s exports. So we can continue this debate in say one year time and see where we are and I have been arrested in the streets of Seattle for speaking out against dictator Obama ;)

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Frying Monkey

No I think you misunderstood what I was saying or I didn't word it correctly. Yes, nations are bailing out their financial industries right and left as of late. This is a completely different animal than changing the global currency.

Okay, possibly I misunderstood you. But then, you are not really making a lot of sense. Your view looks to be distinctly narrow. Point of fact, there are only a few "nations...bailing out their financial industries." Many, particularly those in Europe are refusing to, and many powerful nations, such as England for example, are now thinking twice about continuing to sink money into the failed financial sector. France is another recent example! In fact, the most recent news carried by the BBC this morning asserts the coming G20 in London looks set for conflict and non-resolution.

Like it or not the U.S. Dollar has been the most stable currency along with the U.S. being the most stable government in the world for decades, business seems to like that in a currency.

How can the US dollar be "the most stable currency" when it is on life support?! The only way the US dollar is able to remain afloat is for the status quo of foreign currencies to continue to inject capital into the US economy. That goes for the US government by default. When the dollar collapses so to will any semblance of democracy in the US. The result of chaos will be the installation of a military dictatorship in the US. Would you call that a stable government? Because that is what is on the horizon.

Here's the reality I think your very 1960'w retro-view is missing, one you can guarantee that China and a host of other nations, less financially able, are not able to lose sight of.

This series of massive bank bailouts in the US is funded through the issuance of debt, flooding world markets with hundreds of billions in US Treasuries. The creation of all of that massive debt is being justified within the US by the illusion that the unique position of the dollar can be maintained as the world reserve currency. This is a position it has held since the end of the Second World War. Yes, and you are correct in suggesting business has liked the dollar, but is only because of its central importance in world trade and financial transactions, that there has been this continuous demand in world markets for dollar-denominated assets. But here's another fact, nothing lasts forever.

What is happening is this. The American ruling class is capitalizing on the still privileged position of the US dollar. They are intent on funding these bailouts through the sale of massive volumes of debt on world markets, sucking up available financing and making it more difficult and expensive for other countries to get funding for their own programs.

This is the bind that China is facing. And of course, so is the rest of the world. Many of the posters above taking Junior High style pot shots at China would not be ready to admit the truth, that the US is doing precisely what it has preached for decades to other nations that have faced economically implosion not to do.

I must say though you do write nice :)

Hey, thanks for the compliment. I'm only here to please.

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TokyoHustla at 06:43 AM JST - 26th March

"I buy 2 or 3 each week."

At todays prices that's no big deal. There is however the question as to what you might be planning to do with them when nobody has the money to rent them or buy them & they just start rotting away.

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It's not sarcasm at all. We keep hitting the biggity big boo ya with our fund, up over 470% this year. We, as hedge fund managers, need the primacy of the US dollar. Bankrupt the US - great! I'll make another 1000% on that.

Biggity, big boo ya. Another house for me on a tropical island. Just to let you know, I buy 2 or 3 each week.

No troubles with Aruba, mate. I have seven beachfront houses there. Love the place!

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TokyoHustla at 06:15 AM JST - 26th March

“No! What is want is the primacy of the US Dollar. Or, the Dollar. It is what we need in bonuses to ensure that the US remains in power. We do not need or want a buffer currency, as no one will benefit from this aside from maybe Aruba. What we need are bigger bonuses and better private jets.”

Your sarcasm is duly noted, but to be sure no one gets the wrong idea, what we no longer need is the currency of any single country holding so much power. If the US was a company it would be a bankrupt company & I for one would not be too keen to be holding stock in such a company. So the CEO (Obama) says all is going to be well again in time. No way would I believe this from any CEO of a failed company so why does any one expect any one else to believe Obama? The US lost it & unbalanced all the other economies around the world simply because they had put too much faith in the USD. No, this is not the time to sell up & dump the USD, the value’s too low & too much would be lost. But when it does become worth selling then I would want out so as to never again be at risk of US government laxity.

By the way, what is wrong with Aruba getting a bite of the cherry? Don’t be so mean.

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What is wanted is a buffer currency with an exchange rate based on global trade very much along the lines of the old gold standard.

No! What is want is the primacy of the US Dollar. Or, the Dollar. It is what we need in bonuses to ensure that the US remains in power. We do not need or want a buffer currency, as no one will benefit from this aside from maybe Aruba. What we need are bigger bonuses and better private jets. We are the best and the brightest, and it is our duty to earn alpha for ourselves. Clients be damned.

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““There has been for decades talk about creating an international reserve currency and it has never really progressed,” said Michael Pettis, a finance professor at Peking University’s Guanghua School of Management. Managing such a currency would require balancing the contradictory needs of countries with high and low growth or with trade surpluses or deficits, Pettis said. He said the 16 European nations that use the euro have faced “huge difficulties” in managing monetary policy even though their economies are similar.”

This man is being deliberately obtuse. A world reserve currency is not the same as a single world currency. What is wanted is a buffer currency with an exchange rate based on global trade very much along the lines of the old gold standard. I can well understand the US not wanting such an intrusion into their financial hegemony. The Europeans probably think the Euro is the currency in waiting that could take over if the Dollar ever did its favoured position & the British are so childishly obsessed with the Pound that their faith in it is almost religious & just as irrational.

Granted having said all that I have to add that anything that China may want I don’t want, even it sounds good, the very fact that China wants something is grounds to say no.

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Chinese don’t really mean it! It’s only something warning like “ watch this stuff (dollar) well, otherwise I may invest others.” Do you get it? Don’t need to be so mad or nervous…….

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It's pretty obvious that China, as the largest foreign shareholder of US debt, is making noise and protesting the horrendous way that the US has managed it's house. Any shareholder has the right to complain when they believe that their interest is being poorly managed.

“Chinese are quite concerned that the large U.S. government deficits will eventually lead to inflation, which will erode the purchasing power of the dollar-denominated financial assets which they hold,” Mr. Lardy said. “It is a legitimate concern.”

'While few analysts believe that the dollar will be replaced as the world’s dominant foreign exchange reserve anytime soon, the proposal suggests that China is preparing to assume a more influential role in the world. Russia recently made a similar proposal.'

http://www.nytimes.com/2009/03/24/world/asia/24china.html?_r=1

The Chinese do in fact need to think this through. Not buying anymore worthless US debt is a very plausible outcome.

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Guess the Chinese didn't think this through as it would collapse the value of the dollar and leave their debt holdings pretty much worthless.

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@skipthesong

the gold standard was capital representation of money. Money backed by gold. By leaving the gold standard you don't run out of gold. There's not enough gold on earth now to represent the ever expanding trillions as it not longer represents anything of value, just bits in a computer.

Our Conservation of Debt expands and expands to the point now where it has no representation to the real value of anything, floating off into space practically. The world is not even enough to represent the "money" in use today.

This is why we can't use the gold standard. A Gold Standard would be fine for local currencies though haha

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as globalization collapses, a re-localization emerges including the return of all the middleman jobs that were axed in favour of suburbanism and box stores. If you don't travel much, live in your city and get paid by the city then a local currency works just fine. Thus new interest in local currencies ensures that everyone is paid and lives while not being affected by the USA/China problems.

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Can't Happen. Oil is traded in US Dollars even if the transaction is between two non-USA countries. International banks thus have to have a lot of USD on hand for the transactions to take place. This is one of the magic chequebooks keeping the USA afloat.

Having an international currency at this time would flush out USD back to the American banks, who cannot afford to buy them back. A currency bubble would burst (Japan should be familiar with that one). Thus should that happen the USA and the world economy would collapse even further and one assumes is not the intention of China.

China just wants to stop their job losses as their largest trading partner continues to be insolvent, and will be for many years now. This global currency idea most definitely would not do that, quite the opposite.

On the contrary, if the aim is to not be affected by global uncertainty, far better to have a local currency based on local needs with a range of 100km instead. Thus you have currency security.

Pay globally for global products but pay locally for local ones. Since we live locally and should the meltdown continue, we are still paid and still eat and live well without any dire effects.

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China has had concerns about the size of its sovereign funds in the US for at least ten years. But they just allowed them to keep getting bigger. They know they had no choice on current policies. If the had been smarter they may have spent most of these funds in the US and then Americans would have jobs too, and been able to keep buying Chinese goods. They also might have thought about letting their currency float and not cause the additional distortions to world financial flows and markets that it has, by keeping it artificially low to benefit their exports over others. Their own currency as a result is not regarded by the world as a hard currency like the US dollar is. Yet it should be but they would have to change their practices to achieve it. Maybe they just don't want to. In any case it takes a major crisis like this for the world to learn some lessons. It will be a better and stronger world in ten years - capitalism is still alive and well and although the US has a financial problem, its real wealth in know how, resources, technology and resourcefulness is still there in abundance; as its military power. Someone will step up soon and show them the way out of the financial dilemma - don't write them off. They didn't become number one by an absolute mile by accident. God bless America say this Aussie.

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Good Idea!!

No need to write a paragraph. Good thinking!

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taniwha -

You must have missed the overall scenerio here.

No I think you misunderstood what I was saying or I didn't word it correctly. Yes, nations are bailing out their financial industries right and left as of late. This is a completely different animal than changing the global currency. In the future the government bailouts will be repaid (in a perfect world that is) and the dollar will back to it's old self. Like it or not the U.S. Dollar has been the most stable currency along with the U.S. being the most stable government in the world for decades, business seems to like that in a currency. I understand China being a new kid in the big boy land of global economics wants to flex a bit now that they, as you pointed out are doing OK. That's OK, kind of cute in a way. In order to change the global currency we would need to expand the use of the currency created by the IMF in the 60's, special drawing rights I believe is what they are called. It used to be pegged to the buck but now it is uses a few different currencies to base it's value (sorry, can't pull those off the top of my head). So, we would have to come up with how much more of these special drawing rights to create but after you've sorted the pricing out you then must get private companies to bite.... get where I am going with this? I hope so because I hate spelling thing out like this, I'm a terrible on the keyboard. Any way my communist friend, like I said before “Again imagine the COST! Beijing’s central bank governor’s idea = FAIL “ If you can't get the U.S. Or the EU to even give it a second thought then yes this screams FAIL. I must say though you do write nice :)

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Part of the Chinese incentive to buy greenbacks was to keep the value of their own currency from appreciating. This maintained the competitiveness of their low-tech exports sold by big box retailers in a world full of countries teeming with surplus labor many of which could also supply these goods.

Owing to the economic downturn, however, those businesses are suffering and a lot of the workers have returned to their villages. So the real fear is that China, which is being forced to reorient its economy, will become a center for the design of innovative high-tech products with better profit margins, accelerating the migration of high-value added jobs across the Pacific.

In less industrialized parts of the USA, like the South which has become an auto assembler for foreign brand names, that may be acceptable. But accepting it also means acknowledging America's waning star as a center of innovation.

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China wants its Yuan to dominate world economy but Obama and EU said NO, that is the end of the matter. USD is the world currency because US is STILL the strongest and most stable nation on earth. China can dream about its yuan but that is all, a dream.

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Joe

could you imagine how far you could get with a Yaun?

Here's a thought, when the Chinese economy does finally succumb to the financial crises and the national books spin into debt (and it looks kind of inevitable) and so Chinese investors in US financial assets decide they no longer are able to support the US dollar... will it matter?

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How about the Federation credit?

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I have a great idea, the Chinese stop devaluing their yaun and maybe we could use that? What ya think? Why not, could you imagine how far you could get with a Yaun?

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Sharky1

...just make US $$$ void and switch to the new currency. China would really like that.

Sure, China might like that. But what it would like most of all is for the world economy to stabalize. And surprise, China is not alone on wanting that to happen.

Although this article is focused on China and its hoped for creation of a domestic economic machine that will be able to pull the world's financial system from its terminal dive, alternatives to the US dollar as the world currency is a topic being discussed at high levels elsewhere other than in China.

Just last week, Reuters reported that a source within the Russian government told it that Russia, China, Brazil, and India have secretly discussed moving from the dollar reserve. Russia possesses the world's third-largest store of foreign reserves, about half of which are in dollars.

The Reuters report had this to say. "They [China] did not formally put forward their position for the G20 summit [of financial ministers earlier this month] but unofficially they had distributed their paper regarding the same ideas [the need for the new currency]." The source added that the more-developed nations were "allergic" to the idea, said the source.

Here's what you should keep in mind. China is interested in staying afloat. The Chinese government is interested in continuing its tenuous undertaking with the Chinese people, that the people obey the wishes of the Chinese government so long as the Chinese economy continue to develops and is able to reward all good capitalists, which translates to jobs, food, shelter, to the rest of the population. So long as that continues there will be no further Tiananmen Square protests of the kind that took place in 1989. So, what China has wanted is that the US continue to prop up the value of the US Treasury notes.

But even while the Fed continues to print off skeedadles of dollar bills to prop up those Treasury bills it also has the effect of causing the value of the US dollar potentially to fall, and with it so does China's holdings in the US.

What you have going on here is China the MAIN investor doing no more than any investor would when they think their investment is being badly managed. They make noise!

Here's what Qu Hongbin, chief China economist for HSBC, told the Financial Times in reference to Zhou's comments the other day, "This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money."

China has the tiger by the tail and wants to let go. Can you blame it!

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Not a bad idea actually...just make US $$$ void and switch to the new currency. China would really like that.

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Frying Monkey.

Again imagine the COST! Beijing’s central bank governor’s idea = FAIL

You must have missed the overall scenerio here. The world financial system has already failed. Any measure to fix it is going to cost. So far the cost to Western nations to of the decision to bail out failed banks has been ginormous. Western nations, most of them, already had their national balance sheets deep in the red.

China on the other hand has been in the black. Not for long maybe. But if any one nation is able to do any rescuing of the capitalist system it is going to be China, and India. In fact, that is what China has been doing, and only because it has the financial tiger by the tail.

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The president also pointed to the current strength of American money. “The reason the dollar is strong right now is because investors consider the United States the strongest economy in the world with the most stable political system in the world.”

Sounds an AWFUL lot like the rhetoric favored by the last administration. The strategy here is as it has been particularly in the past 8 years of the Bush a, tell the lie often enough and everyone will begin to believe it is true.

Let's not call it a lie. Let's be generous and call it wanton obfuscation, from the mouth of the president no less. Point of fact, the investors that actually do count are now being heard to publicly express their doubt that "the US is the strongest economy in the world."

But it isn't just the president and his speech writers (the Whitehouse et al), it is the mainstream press too. Come on now. Just look at this article that leads this thread for starters! Okay one hesitates to call this article an example of something written by the mainstream press, but the fact remains it too is total obfuscation.

The world economic crisis shows the “inherent vulnerabilities and systemic risks in the existing international monetary system,” Gov Zhou Xiaochuan said in an essay released by the bank. He recommended creating a currency made up a basket of global currencies and controlled by the International Monetary Fund and said it would help “to achieve the objective of safeguarding global economic and financial stability. Zhou did not mention the dollar by name.”

Actually Zhou did EVERYTHING BUT mention the dollar by name.

This is what Zhou also said. Not mentioned by the article above. "The price [of maintaining the current regime] is becoming increasingly high, not only for the users, but also for the issuers of the reserve currencies..." He continued, "The frequency and increasing intensity of financial crises following the collapse of the Bretton Woods system suggests the costs of such a system [the dollar reserve regime] to the world may have exceeded its benefits."

This clear warning shot fired by the head of the Chinese central bank just this Monday past, was quickly followed on Tuesday, by a spokesperson from the government-backed Chinese Academy of Social Sciences Li Xiangyang, calling the Fed's new policy of purchasing US Treasuries "irresponsible." Xiangyang said that China would likely ask for "specific measures" on the part of the US to ensure the value of Chinese holdings.

Could the message from China be anymore explicit? Could the warning be any clearer?

By the way, Zhou also called on the US to "maintain its good credit, to honor its promises and to guarantee the safety of China's assets."

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As ridiculous as this idea is, especially in this world economic state, let us entertain it for a moment. Any idea how much that would cost the trading world to revamp the entire system? Oh and then there is time, but then again time equates to money…. Again imagine the COST! Beijing’s central bank governor’s idea = FAIL

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China needs to hold it's tongue !!!! What comes UP, Must come DOWN !!!!

China needs to chill !!!!

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perhaps I am too young, but why don't we go back to the gold standard?

if the dollar is devalued, what happens to all the money China is owed?

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Americans need to elect a Republican prez who can play China on currency issues as shrewdly as Nixon did the Soviets.

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TCLH, it's a game the big boys play.

When we did it to the Russkies, we playfully called it 'pokin' the bear'.

I don't know what they called it when they did it to us. -'Suicide by cop' maybe?

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Well President Obama assures China that its money in US is safe,and at the same time USS Chung Hoon is dipatched. China also increases the tension by sending bigger faster ship to the region and sunk(?) fishing boat from smaller country (Vietnam) near Hainan but close to Vietnam. I feel that something big is developing( Russia wants to talk, France rejoins NATO).

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Libertas, I'm not worried about it.

TCLH, the US and Chinese economies don't depend upon one another but maybe it's for the good that the illusion is being presented and dramatized. Maybe enough politicos in China and the Western Allies will avoid goin' nuclear on each other because they end up believin' it's more important they work on their 'economies'.

The Law of Unintended Consequences doesn't always have bad outcomes.

Think of it this way: When all those countries over the decades default on their debts to the US, we move on. When we forgive - in part or in whole - debt after debt because there's just no way those nations can pay us back anyway, we go on.

And, TLCH, I've been at the JT Olympics longer than anyone else I know here, and I can tell ya that Americaphones have been pointin' out the death of the American economy since Day One.

Same stuff, different day, that's all.

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China has some "BIG" things to worry about at present time, from investments in US to Tibet ," South China Sea" as US already send USS Chung-Hoon to escort USNS" Impeccable" because the ship was harrassed in performing its duty.Not that easy going any more, heh?

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EVERYBODY'S worried about U.S. Treasury holdings. Talk about junk bonds.

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SuperLib wrote:

"Doesn't China devalue their currency intentionally?"

"China and the US depend on each other. Period."

Spot on this time.

sarge wrote:

"Americans have already chosen President Obama and the Democrats to spend like never before."

He's just continuing in the fine tradition of that failed president, George W. Bush. He obviously didn't learn from the failed economic and foreign policies of the Bush administration. As a matter of fact, history does repeat itself, as evidenced by Obama's wrong-headed acceleration of our involvement in Afghanistan-this coming after a campaign in which he said he would save billions by getting us out of Iraq in a year and a half, and with the media being derelict in its duty by not asking how spending extra billions each month in Afghanistan would make such a claim feasible.

It seems as if we can't get it right in choosing our leaders since the two administrations of Bill Clinton.

China should concern itself with dealing with Pres. Obama for only 4 years.

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They say, "lend a man a little money and you put him in your power; lend a man a great deal of money and you put yourself in his."

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"Don't devalue the dollar through reckless spending"

Too late. Americans have already chosen President Obama and the Democrats to spend like never before.

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China will be the only speaker at G20, India may get few minutes + audience of G18. China's concerns are genuine worth more than $1 tri, ofcourse China and the US depend on each other but at the moment China has an upper hand.

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China and the US depend on each other. Period.

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Who needs a fully staffed Treasury Dept - or a competent Treasury Secretary - when hope and change is the currency.

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China holds no power over the U.S. Its the other way around. China can not prosper without the U.S consumer. It is within Chinas best interests to see the U.S remain a financial superpower. However once they have taken all they need from Japanese tech companies they very well may boot them out of China all together. Uncle Sam may not even say a word about it by then. China is Uncle Sams new favorite Nephew.

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China used to have its currency pegged to the dollar, which isn't an uncommon practice in this World, except when the United States wants its currency to decline vs. another to spur its own exports to that country.

Any threats to Americas currency would just result in the US holding back all financial aid and charitable donations over a 5 year period...Every year millions and millions of dollars go overseas for others who, as far as I can gather, don't appreciate it.

What you don't understand is much of that "aid" comes back to the United States through the purchase of military equipment, agricultural products and engineering services such as building bridges and roads in these Third World basket cases. It is not so much "aid" as it is a back door transfer of taxpayer dollars to U.S. corporations.

China wouldn't need to dump its treasuries to rattle the U.S. economy. China would just have to refuse to buy any more U.S. debt. For example, the $700 million so-called stimulus package needs someone to pay for it. It will either be done with Chinese borrowing or a Wiemar Germany style running of the printing presses (that inflates the currency).

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"China is holding enough US currency to sink the US economically if they were to ever sell the US$$ back."

Hardly ! The US economy is extremely resiliant. Any threats to Americas currency would just result in the US holding back all financial aid and charitable donations over a 5 year period. Maybe this is what the US should start to consider. Every year millions and millions of dollars go overseas for others who, as far as I can gather, don't appreciate it.

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Don’t devalue the dollar through reckless spending.

Doesn't China devalue their currency intentionally?

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China is holding enough US currency to sink the US economically if they were to ever sell the US$$ back. This alone is pretty good collateral on US debts. This kind of talk by Wen only serves to destabilize confidence in the US and exacerbates global economic difficulties. There are times when you need to not speak and use a little wisdom.

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