As I noted last night, China seems to be hinting that it will push to end the dollar’s status as the world’s reserve currency, a move which would have serious implications for the American economy. While it’s easy to dismiss this as what I referred to as a Beijing head fake or an effort by China to nudge the U.S. and remind Obama that their patience will not be eternal, there are other signs out there that something far more serious may be afoot.
The Kremlin published its priorities Monday for an upcoming meeting of the G20, calling for the creation of a supranational reserve currency to be issued by international institutions as part of a reform of the global financial system.
The International Monetary Fund should investigate the possible creation of a new reserve currency, widening the list of reserve currencies or using its already existing Special Drawing Rights, or SDRs, as a “superreserve currency accepted by the whole of the international community,” the Kremlin said in a statement issued on its web site.
The SDR is an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries.
The Kremlin has persistently criticized the dollar’s status as the dominant global reserve currency and has lowered its own dollar holdings in the last few years. Both President Dmitry Medvedev and Prime Minister Vladimir Putin have repeatedly called for the ruble to be used as a regional reserve currency, although the idea has received little support outside of Russia.
LUXEMBOURG (Reuters) – A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar.
Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.
Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.
“It is a good moment to move to a shared reserve currency,” he said.
All of this comes in advance of Barack Obama’s first international summit as President, the G-20 meeting in London:
On April 2, the G-20 will meet at a long-awaited meeting in London in which, as The Wall Street Journal reports, China will call for the creation of a new currency to eventually replace the dollar as the world’s standard, proposing a sweeping overhaul of global finance that reflects developing nations’ growing unhappiness with the U.S. role in the world economy.
“The unusual proposal,” reports the Journal, “made by central bank governor Zhou Xiaochuan in an essay released Monday in Beijing, is part of China’s increasingly assertive approach to shaping the global response to the financial crisis.”
To understand China’s strategy is to understand the cultural tradition of yielding power, which goes back 6,000 years to the Wu Priesthood. Over the millennia it has brought forth Lao Tsu and Sun Tzu. Vietnam’s Gen. Giap said he used it to beat the Americans. It is an intuition-based philosophy that is diametrically opposed to the casually hide-bound Protestant Ethic. It relies on waiting; waiting for as long as it takes — decades, centuries, millennia, if necessary.
Will London 2009 be the beginning of a new international monetary standard ? Will it be the Bretton-Woods of the 21st Century ?
We won’t know until it happens, but the signs of something major happening are all there.