China Advocates Super Currency (Article)

[PikeStance]

The Article: Replace dollar with super currency: economist

The most compelling argument against the idea:

"Flexible exchange rates provide a useful shock absorption mechanism, especially for emerging market economies," Prasaid, a former chief of financial studies in the International Monetary Fund's research department, told China Daily on Tuesday. "More effective financial regulation and improved global governance, along with better fiscal and structural policies, would go much further than a single currency in enhancing global financial stability," he said.

Arguments in favor

The piece argued that creating a new international reserve currency to replace reliance on the greenback, would prevent government gridlock in Washington from affecting the rest of the world.

With the exception of oil ( a big exception) countries choose the US dollar as a reserve note even though they can choose the Euro.

The piece argued that creating a new international reserve currency to replace reliance on the greenback, would prevent government gridlock in Washington from affecting the rest of the world..... Zhou Xiaochuan, called for the creation of a new "super-sovereign reserve currency" to replace the dollar...."an international reserve currency 'disconnected from individual nations' and 'able to remain stable in the long run' would benefit the global financial system more than current reliance on the dollar."

Last time I checked, it caused little financial problems in the world. The crash in 2008 would had happened anyway. Major financial institution are interconnected. A crash in a major market would impact globally.

Chen Wenling, chief economist at the China Center for International Economic Exchanges, "A supranational currency may be a new direction for development of the global financial system. It also requires different countries to cooperate in coordinating macroeconomic policies."

Between the WTO, the World Bank, and the IMF there is already mechanisms in place to promote international monetary cooperation. Creating a a single currency will only 'enslaved' the weaker nations to the whims of the nations that benefit most from a single currency.

Final word

Michal Krol, a researcher at the Brussels-based European Center for International Political Economy, said he disagrees .... "Neither the EU nor China have financial markets and monetary systems yet that are sound, solid, predictable and well functioning to be the cornerstone for a global system. But, indeed, it is time to formulate the fundamentals for global monetary governance."

Truer words have not been spoken. I find it ironic that China cries poor over environmental issues, but throws itself around like a heavy weight on political and economic issues. Personally, they should focus more on boosting domestic consumption reducing its over reliance on export than on undermining the world economy... but that's just me.

[Simon Cashmere]

With the exception of oil ( a big exception) countries choose the US dollar as a reserve note even though they can choose the Euro.

Uncle Sam inflicts pretty heavy penalties on people who decide not to 'choose' the US dollar. Saddam Hussein signed his own death warrant after announcing he was going to sell oil in Euros, which was the real reason for the invasion not WMDs or any other silly reason given to the public. Whilst Baghdad burned with looters, US troops were devoted to safeguard the Oil Ministry. The first edict the Oil Ministry issued under US control, sale of oil reverted from Euros to USDs.

Also, this is just one economist speaking - not 'China'.

[Derpy Hooves]

Uncle Sam inflicts pretty heavy penalties on people who decide not to 'choose' the US dollar. Saddam Hussein signed his own death warrant after announcing he was going to sell oil in Euros, which was the real reason for the invasion not WMDs or any other silly reason given to the public. Whilst Baghdad burned with looters, US troops were devoted to safeguard the Oil Ministry. The first edict the Oil Ministry issued under US control, sale of oil reverted from Euros to USDs.

Also, this is just one economist speaking - not 'China'.

[spanish_emperor]

snip

Do you have any evidence for this? It is pretty evident the invasion of Iraq was on the table before Saddam even thought of selling oil in euros as can be evident by learning a bit of the first Gulf war in which Bush Sr. failed to achieve all his objectives. I am not saying that would have not been a reason for its invasion - Saddam probably decided to sell oil in euros because of the embargo in place by the US meant he could not get enough US dollars to partake in international trade and the French were selling him arms, etc. which gave him euros. This might have been a reason to speed up invasion plans but to declare this as the "real reason" for invasion makes you sound quite ignorant.

[PikeStance]

Uncle Sam inflicts pretty heavy penalties on people who decide not to 'choose' the US dollar. Saddam Hussein signed his own death warrant after announcing he was going to sell oil in Euros, which was the real reason for the invasion not WMDs or any other silly reason given to the public. Whilst Baghdad burned with looters, US troops were devoted to safeguard the Oil Ministry. The first edict the Oil Ministry issued under US control, sale of oil reverted from Euros to USDs.

This is a suspicious response considering I stated this in my responses in the OP; With the exception of oil ( a big exception) countries choose the US dollar as a reserve note even though they can choose the Euro. The US as one of the biggest importer of oil; it being sold in dollars is not going to change any time soon.

The article is not referring to the "petro dollar," it is referring to reserves. Some countries do "peg" their currency to the US dollar (e.g. UAE) while others do not (e.g. Ivory Coast "pegged" to the Euro- I believe still). While the theory for the cause of the second Iraq war is enticing, Iraq was a "rogue nation" dislike by the real power in the region; namely Saudi Arabia. The Saudis have a stranglehold over OPEC. As long as they are in control of OPEC's policies, the Dollar will continue to be the medium of exchange.

Also, this is just one economist speaking - not 'China'.

Sorry, but I count THREE, not ONE

ECONOMISTS & MOMETARY POLICY MAKERS

Justin Yifu Lin: professor at Peking University and a leading adviser to the Chinese government
Zhou Xiaochuan: China's central bank governor
Chen Wenling: chief economist at the China Center for International Economic Exchanges, a government think-tank

Also quote from the article from Lin; "The solution to this is to replace the national currency with a global currency."

Two of the above is connected with the Chinese government in one form or another. There was also an article in the New York Times (I believe) where China advocated less dependence on the US dollar. This is a major concern for China because there are having an internal credit crunch retarding infrastructural development which is necessary if they want to boost domestic consumption and spending. I will try to find the article, but I have a lunch date now. haha

[Phier]

Odds are if China wants to do it, its going to be a bad idea for pretty much everyone but China.

So many people closer to China than I am have told me they could well economically collapse in the near future, I have to wonder about long term motives here.

[Border Patrol]

http://www.stratfor.com/weekly/recog...onomic-miracle

[PikeStance]

Odds are if China wants to do it, its going to be a bad idea for pretty much everyone but China.

So many people closer to China than I am have told me they could well economically collapse in the near future, I have to wonder about long term motives here.

http://www.stratfor.com/weekly/recog...onomic-miracle

Interesting article

The Chinese economy could perhaps be growing at 7.4 percent, but I doubt the number is anywhere near that. Some estimates place growth at closer to 5 percent.
The Chinese can prevent the kind of crash that struck East Asia in 1997. Their currency isn't convertible, so there can't be a run on it. They continue to have a command economy; they are still communist, after all. But they cannot avoid the consequences of their economic reality, and the longer they put off the day of reckoning, the harder it will become to recover from it. They have already postponed the reckoning far longer than they should have. They would postpone it further if they could by continuing to support failing businesses with loans. They can do that for a very long time -- provided they are prepared to emulate the Soviet model's demise. The Chinese don't want that, but what they do want is a miraculous resolution to their problem. There are no solutions that don't involve agony, so they put off the day of reckoning and slowly decline.

The Chinese government has been deceiving people about their growth numbers for a number of years. I use to remark to local Chinese that at some point, the economy will crash and this place will hit a header and all hell will break lose. Most shook their heads in agreement. I think many know they continue the way they are going, but they are all hoping for a miracle.

The Chinese are, of course, keeping a great deal of money in U.S. government instruments and other markets. Contrary to fears, that money will not be withdrawn. The Chinese problem isn't a lack of capital, and repatriating that money would simply increase inflation. Had the Chinese been able to put that money to good use, it would have never been invested in the United States in the first place. The outflow of money from China was a symptom of the disease: Lacking the structure to invest in China, the government and private funds went overseas. In so doing, Beijing sought to limit destabilization in China, while private Chinese funds looked for a haven against the storm that was already blowing.

My understanding of the matter is the Chinese needed to invest in the US to boost American spending on Chinese goods. I am not sure if there is a choice here.

China will always exist. It will, however, no longer be the low-wage, high-growth center of the world. Like Japan before it, it will play a different role.....
The second thing to bear in mind is the overwhelming poverty of China, where 900 million people have an annual per capita income around the same level as Guatemala, Georgia, Indonesia or Mongolia ($3,000-$3,500 a year), while around 500 million of those have an annual per capita income around the same level as India, Nicaragua, Ghana, Uzbekistan or Nigeria ($1,500-$1,700). China's overall per capita GDP is around the same level as the Dominican Republic, Serbia, Thailand or Jamaica. Stimulating an economy where more than a billion people live in deep poverty is impossible. Economic stimulus makes sense when products can be sold to the public. But the vast majority of Chinese cannot afford the products produced in China, and therefore, stimulus will not increase consumption of those products. As important, stimulating demand so that inefficient factories can sell products is not only inflationary, it is suicidal. The task is to increase consumption, not to subsidize inefficiency.

Here in lies the problem.... it needs to increase domestic consumption but lacks the ability to do that without feeling some pain. The longer they wait; the more painful wit will get as more the number of viable low wage countries pop up.

[Condottiere 40K]

You could also insist on Spanish Doubloons as international settlements, or gold Dinars which I believe that the Malaysians tried.

[Knight of Heaven]

Between the WTO, the World Bank, and the IMF there is already mechanisms in place to promote international monetary cooperation. Creating a a single currency will only 'enslaved' the weaker nations to the whims of the nations that benefit most from a single currency.

Indeed as it happened within the euro.

Odds are if China wants to do it, its going to be a bad idea for pretty much everyone but China.

So many people closer to China than I am have told me they could well economically collapse in the near future, I have to wonder about long term motives here.

Because its china? ll nice argument there... Because anyother Nation it has altruistic motives to do this kind of stuff. And coming from an American i supose, then its the bigest punch line ever.

China economy It could colapse, or it could not, forecast isnt favorable to that ideia though.
The theory however comes from the demogrphics nightmare that china will face and is still facing, but in truth, their social systm is diferent, and usualy the elders are care for by their families, in their late, retired life, the weight of the state, might not be so big as one can imagine on this. Where the oposite is exactly happening in some, if not most EU countries.

This might have been a reason to speed up invasion plans but to declare this as the "real reason" for invasion makes you sound quite ignorant.

What was the real reason? after all this time im still unclear on that.
Dont tell that was the WMDs because i dont think Bush or the American goverment is that stupid. Even though Bush looks like it.

[Knight of Heaven]

Here in lies the problem.... it needs to increase domestic consumption but lacks the ability to do that without feeling some pain. The longer they wait; the more painful wit will get as more the number of viable low wage countries pop up.

It is my understanding, that Midlle class, and domestic comsuption is on the rise in China for some time now. The major exports from the EU and US to china kinda proves it too.

[PikeStance]

It is my understanding, that Midlle class, and domestic comsuption is on the rise in China for some time now. The major exports from the EU and US to china kinda proves it too.

Well, everything with China is relative. The previous article described China's economy as "sluggish" despite a growth rate of 5- 7%. This is not sluggish, but compare what it once was, it can seem that way.

Let's look at some figures (Source1)

By 2022, our research suggests, more than 75 percent of China’s urban consumers will earn 60,000 to 229,000 renminbi ($9,000 to $34,000) a year.

Note the qualifier... "urban consumer" Also note, the large disparity in earnings. I assume this is adjusted for PPP, because per capita income for China is about 8,000 now.

Source2

annual income of between $10,000 and $60,000 U.S. dollars. But income is a little misleading because the cost of living in China is very different. A rule of thumb is a household with a third of its income for discretionary spending is considered middle class.

This is partially true. Things are cheaper, but not by much even in Changchun. In cities like Beijing and Shanghai the cost of living is much higher. However for many Chinese their income does go further if they buy Chinese. Their purchasing power is buying cheaper locally made products. American and European products are more expensive and is considered an luxury item.

Much of the middle class growth is due to increase numbers of households in China in which the one child policy had little effect. The growth experience is due to the economic growth China has been experiencing. Can this growth continue?

[hellheaven1987]

Can this growth continue?

Why not? In Singapore even 2% annual economic growth would be celebrated as good achievement today.

[conon394]

Seems like an odd ideal when we have all been busy watching the Euro Zone issue with multiple fiscal policies but only one monetary one.

And while I think the US would better off with the Dollar loosing is current stature, its a inculcated prestige issue here - It would be viewed as admitting American weakness and decline etc etc... no US Pol is going to do that, even the whole dollar macho-ism is kind of counter productive since it favors imports over domestic production.

[Condottiere 40K]

Also, not as easy to print your way out of problems.

[conon394]

Which is not always bad thing - look at the Fed, with the Congress in gridlock qualitative easing is supporting the economy but there is little doubt it will stop if growth stabilizes, unemployment falls down a more normal level and if inflation shows signs of coming into play. But honestly with the CPI hovering between 1-2% printing money aint bad. Personally I like the see the Fed do more and buy less from banks so they give it to Jeremy Diamond for doing a bad job, but rather buy state and muni bods and relive the budget pressure on them.

[Kraut]

So China will join the Euro?

I need some time to figure out whether this is good news or bad news.

[conon394]

I need some time to figure out whether this is good news or bad news.

Good news for anyone not in China as it would remove their cheap currency industrial vampire policy

[Kraut]

Good news for anyone not in China as it would remove their cheap currency industrial vampire policy

But I am a little worried about the coming border disputes at the new European frontier. But then, everybody knows the Senkaku Islands and Paracel have ALWAYS been EU territory, right?

[Simon Cashmere]

Phier is right to be worried about China. While their central government is fine with money in the bank, the provinces like US states are teetering on bankruptcy. Will the Central Government bail them out? China has also threatened to short the USD and dump billions in US treasury bonds onto the market. But the group long on US bonds is them - so it's the threat of a suicide bomber detonating himself 1000s of miles away and communicating the threat via telephone.

China is the living example of the joke if owe the bank a million you have a problem, if you owe the bank 100 million the bank has a problem.

Even with China's problems - their regular domestic consumption alone will soak up a lot of world demand.