China wants to replace U.S. dollar with new reserve currency

Here we go. China pushes SDR as global super-currency:

Zhou's speech shows that the issue is a pressing one for China, whose top officials regularly bemoan the volatility of the dollar and what they see as U.S. economic mismanagement.

Creating a new, widely accepted reserve currency may take a long time, Zhou acknowledged. It would be a "bold initiative that requires extraordinary political vision and courage".

SDR ADVANTAGES

Allocating more SDRs would give the IMF more resources and help it address imbalances in power within the fund, where big emerging economies like China muster a fraction of the votes cast by Europe and by the United States, which wields a veto.

As well as a further allocation of SDRs, Zhou proposed a series of steps to broaden the unit's use so it can evolve into a reserve currency:

-- Set up a settlement system with other currencies so there SDR can be widely accepted in global trade and financial transactions. Currently, the SDR is largely an artificial unit used by governments and international institutions.

-- Actively promote the use of the SDR in trade, commodities pricing, investment and corporate bookkeeping.

-- Create financial assets denominated in SDRs to increase its appeal. The introduction of SDR-denominated securities, which is being studied by the IMF, would be a good start, Zhou said.

-- Expand the basket of currencies forming the basis for valuing the SDR to include currencies of all major economies.

If the SDR were backed by real assets, such as a reserve pool entrusted to the IMF, confidence in its value would rise and destabilising currency speculation would be deterred, Zhou said.

Thanks to The Mess That Greenspan Made for writing about this, although it comes to no surprise to EPers since just a few days ago midtowng wrote UN Panel Says World Should Ditch the Dollar.

Think the world will continue to buy U.S. debt forever? Now how about that free trade stuff and how offshore outsourcing U.S. manufacturing and jobs is good for America. Now how does that all work again?

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