China’s central bank chief wants to see the dollar replaced as the world’s reserve currency by the International Monetary Fund’s Special Drawing Right (SDR).
The IMF created SDRs in 1969 to support the Bretton Woods fixed exchange-rate system. But they became insignificant when that regime collapsed in the early 1970s.
Now the SDRs value is tied to a basket of four currencies: the dollar, euro, yen and pound. It’s used mainly as an accounting unit by the IMF and some other international organizations.
Zhou Xiaochuan, governor of the People’s Bank of China, wrote on the central bank’s web site: “The outbreak of the [credit] crisis and its spillover to the entire world reflected the … systemic risks in the existing international monetary system.”
The world needs a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run,” Zhou writes.
Such a move would remove “the inherent deficiencies caused by using credit-based national currencies,” he maintains.
Analysts say China is afraid of the outcome of U.S. economic stimulus.
“This is a clear sign that China is concerned about the inflationary risk of the Federal Reserve printing money,” Qu Hongbin, chief China economist for HSBC, tells the Financial Times.
But Zhou’s remarks were contradicted — at least for now — by China’s director of the State Administration of Foreign Exchange, Hu Xiaolian.
He said at a press conference: “The US dollar is still the most important currency … in the current international monetary system.”
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