China Wants a New Global Reserve Currency
Zhou Xiaochuan Asks for an International Currency Other than USD
Mar 24, 2009
Calls are getting louder to create a new global reserve currency in the current financial crisis which began in 2007 with the crisis of sub-prime mortgages in the United States.
The instability of the international financial system has uncovered several weaknesses in regulation strategies as well as the organization of the financial institutions, such as the IMF, the International Monetary Fund. Especially the American economy has been deeply hit by the crisis and faces severe distrust from other nations, specifically China, its major asset holder with about $1000 billion US of foreign trade volume. The insecure value of their foreign assets in USD is making Chinese analysts uneasy.
China, which hasn't been touched as severely by the crisis as Europe or America, is not only holding risky assets but it is also one of the secret hopes of the international community, as many think China could save the world with its financial stimulus package. These expectations will certainly strengthen China's position at the upcoming G20 summit on 2 April and temper the criticism against the yuan being artificially kept at low-level to help Chinese exportations. The discussions at the summit are expected to find new ways of stabilizing the international financial system.
Zhou Xiaochuan Asks for a New Global Reserve Currency
In order to reiterate China's position on the financial reform process, Chinese central bank chief Zhou Xiaochuan has published on 23 March an essay on the homepage of The People's Bank of China which clarifies that they advocate the creation of a new global reserve currency based on the 1969 IMF concept of the SDR, the Special Drawing Rights, an international virtual currency made up of the 4 major currencies (USD, EUR, JPY, GBP) which is, among other things, used by the IMF to peg other currencies against this international and rather stable value.
Also currency specialist Avinash Persauda, a member of the U.N. Commission of Experts on International Financial Reform, explained at the 2009 Reuters Funds Summit in Luxembourg that their commission will be releasing a set of recommendations for the G20 summit, of which one will be the creation of a new global reserve currency, just like Zhou already advised. He argues that such a global reserve currency made up of a basket of many international currencies would lead to a much more diversified and stable value everybody could relate to, with more secure assets for investors and a bigger spread of assets.
Developing Countries Expect More Power and Rights in International Institutions
Alongside with this piece of advice and a probably increased future contribution in international financial questions, China and other developing countries such as India, South Africa and Brazil expect more power and rights in international financial institutions such as the IMF, which determines the voting power of its 185 members by a quota relative to their respective size in the global economy. China, the world's third-largest economy, feels disregarded next to the U.S. and the U.K. dominating the IMF.
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