China proposes replacing dollar as world currency standard

March 24, 12:04 PMProgressive Politics ExaminerJay McDonough

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Following a similar suggestion from Russia a few weeks ago, China central bank chairman, Zhou Xiaochuan, caled for the creation of a new currency to replace the U.S. dollar as the international currency standard.  From the Wall Street Journal:

Like China, Russia recommended that the International Monetary Fund might issue the currency, and emphasized the need to update "the obsolescent unipolar world economic order."

Chinese officials are frustrated at their financial dependence on the U.S., with Premier Wen Jiabao this month publicly expressing "worries" over China's significant holdings of U.S. government bonds. The size of those holdings means the value of the national rainy-day fund is mainly driven by factors China has little control over, such as fluctuations in the value of the dollar and changes in U.S. economic policies. While Chinese banks have weathered the global downturn and continue to lend, the collapse in demand for the nation's exports has shuttered factories and left millions jobless.

Moving to a reserve currency that belongs to no individual nation would make it easier for all nations to manage their economies better, he argued, because it would give the reserve-currency nations more freedom to shift monetary policy and exchange rates. It could also be the basis for a more equitable way of financing the IMF (International Monetary Fund), Mr. Zhou added. China is among several nations under pressure to pony up extra cash to help the IMF.

It's noteworthy that Zhou's comments come shortly following Premier Wen Jiabao's expressed concern about the large Chinese investment in U.S. Treasury bonds and is clear evidence the Chinese intend to play a more significant role in world finance. 

China, no doubt, feels stung by the collapse of the global economy, led by America and followed by Europe primarily.  The Chinese economy was relatively stable, and is now in jeopardy as demand for Chinese exports has collapsed.  Faced now with the widespread closing of Chinese factories and the resulting massive unemployment, the Chinese government is fearful the unrest may prove destablizing to their rule. 

Mssrs. Wen and Zhou's comments suggest China is determined to find new ways to mitigate that risk.