Is China's global currency plan viable?
China's central bank wants to replace the dollar as the global reserve currency with a new currency controlled by the International Monetary Fund. Would this proposal work? Jeremy Hobson reports.
A customer exchanges U.S. dollar notes at a bank in Beijing. (Emilie Mocellin/AFP/Getty Images)
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TEXT OF STORY
Kai Ryssdal: We've been paying for the bailout two different ways: by the Fed printing more money, and the Treasury Department selling more T-bills. The limitations of that strategy became clearer this morning thanks to the Chinese central bank -- a proposal to swap out the dollar as the global-reserve currency, and eventually replace it with something controlled by the International Monetary Fund.
Beijing holds more foreign reserves than any other country. American greenbacks make up more than half of its $2-trillion stash, and that makes them acutely aware of the value of a dollar. But it is still going to be difficult to change the currency status quo as Marketplace's Jeremy Hobson reports.
JEREMY HOBSON: The Chinese proposal comes just a week after Russia floated a similar idea. This morning, Republican Congresswoman Michele Bachmann asked Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner what they thought of it.
Rep. Michele Bachmann: Would you categorically renounce the United States moving away from the dollar and going to a global currency, as suggested this morning by China and also by Russia, Mr. Secretary?
Tim Geithner: I would yes.
Rep. Bachmann: You would categorically, and the Federal Reserve chair?
Ben Bernanke: I would also.
That's important because the U.S. can veto policy decisions at the IMF. Plus, says Marc Chandler, head of currency strategy at Brown Brothers Harriman.
MARC CHANDLER: Watch what the Chinese do. Not what they say. And here's what they've done. In the second half of last year, the Chinese increased their Treasury holdings by 38 percent.
Chandler and other currency strategists say China wants to flex its economic muscle. But to create a new global currency, China would have to talk other countries into using it. Good luck, says international economist Robert Scott at the Economic Policy Institute.
ROBERT SCOTT: There are hundreds of billions of dollars worth of $100 bills in circulation in places around the world like Russia and Kazakhstan, where these are the accepted forms of currency. So you'd have to replace all that currency, and that's not a trivial matter.
And experts say the dollar's success isn't just because of the economy it represents. There's a lot of military might backing that dollar too. That is something an international currency without a country behind it wouldn't have.
In New York, I'm Jeremy Hobson for Marketplace.
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03/26/2009
woo!
From Osseo, WI, 03/24/2009
The depression that we are now in, we will not come out of! Why? because the backing for the dollar is gone, the Government thought they could be responsible enough to not over print money in respect to it's collateral. This started back in the forties, when the gold was called in and they begin printing federal reserve notes. The idea was to temporarly print extra money, and then repay it. the Gov. has never been able to pay these short term loans (so to say) back,and that means that we keep getting money that's worth less and less. The key to coming out of this depression is,putting a guarintee on each 1, each 5, each 10, etc. each denonination has to be backed by something, not necessaryly gold or silver, it could be 1 12oz bottle pure Lake Michigan Water, but each denonination would need about 10 different things to back it, 10 different bills each with a different type of backing. the 5 could have 2 12 oz canes of beer, and 9 diferent items for the other 5's. Also the gov, could use parts of shares in national parks, monuments,rivers, the country has the resources to guarntee the money, it's just not gold or silver. Also the land that the gov. owns needs to be sold back to the people, that way at the very least property taxes are payed on it, if not incime taxes. Also all backing for the currency has to be from the USA. Also their has to be one federal bank to handle the currency. The land if sold cannot be sold in large lots, it would have to be sold in 40 acre parcels with a rerquirement that the new owner has to keep it for 10 years, Guarinteeing the currence like I suggested would get other countries to do the same, for theirs. In the 30ies their was only so much money, it didn't disappear it just changed hands, some people lucked out and got rich others failed. Sooner or later the rich have to pay for services, so the money gradulally equals out. In Closing! Money has to have a backing! The whole government is the most responsible for the situation, now! They should all take a 10% cut in pay and no raises for 5 years. My Quote THE WORST ENEMY TO ANY COUNTRY IS THE PEOPLE RUNNING IT!
From Halifax, NS, 03/24/2009
Your readers will also need to consider BoC Vice Governor Hu Xiaolian's remarks yesterday on continued Chinese investment in T-bills and the intense media coverage of that. There's important coverage of the issue by Brad Setser at CFR too.
By the way, I strongly suspect that bringing up the linkage between reserve currency status and military might at this time is a serious error in judgment.
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