Metaphorically, of course. After suggesting that the U.S. needed to do more to prove the security of the bonds being held by Beijing, China now has taken aim at the dollar’s role as the world’s reserve currency. Reports the New York Times:
In another indication that China is growing increasingly concerned about holding huge dollar reserves, the head of its central bank has called for the eventual creation of a new international currency reserve to replace the dollar.
In a paper released Monday, Zhou Xiaochuan, governor of the People’s Bank of China, said a new currency reserve system controlled by the International Monetary Fund could prove more stable and economically viable.
A new system is necessary, he said, because the global economic crisis has revealed the “inherent vulnerabilities and systemic risks in the existing international monetary system.”
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.
China’s bold idea, released more than a week before world leaders are to gather in London for an economic summit meeting, also indicates that Beijing is worried that its huge dollar-denominated foreign reserves could lose significant value in coming years.
China has the world’s largest foreign exchange reserves, valued at nearly $2 trillion, with more than half of those holdings estimated to be made up of United States Treasuries and other dollar-denominated bonds.
Although the dollar isn’t likely to lose its dominant role in the short-term, Washington’s wildly irresponsible fiscal and monetary policies make the Dollar vulnerable over the longer term. And don’t expect the Chinese–or Russian and European, as well–economic challenge to go away any time soon.
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