Tilted Forum Project Discussion Community  

Go Back   Tilted Forum Project Discussion Community > The Academy > Tilted Economics

LinkBack Thread Tools
Old 03-25-2009, 01:28 PM   #1 (permalink)
roachboy's Avatar
Super Moderator
Location: essex ma
China proposes the end of the era of the dollar

China’s plan to end the dollar era

Published: March 24 2009 19:46 | Last updated: March 24 2009 19:46

Zhou Xiaochuan, China’s central bank governor, has delivered a powerful message to the world this week. He wants an end to the dollar era. This is not sabre-rattling. He has made serious proposals for a reserve currency to rival the greenback and he deserves a hearing.

During the 1997 crisis, Asia’s emerging market economies learnt a painful lesson: do not run out of foreign reserves. China, in common with many other Asian emerging market economies, built up towering mounds of foreign assets to give itself a backstop against future emergencies.

The People’s Republic has, however, over-exposed itself to the US, piling up dollar-denominated securities. In January, its stock of US Treasuries was about $739bn – a startling leap from $535bn in June last year. Yet Washington puts domestic economic needs before its creditors; the Beijing authorities now worry that possible future inflation could cost them dearly.

Chinese attempts to diversify into other currencies lost them money and efforts to buy higher-yielding US assets ended badly. It would be in China’s interests to have another safe reserve asset – but this does not mean that it would be against America’s. It would, of course, make it more difficult for the US to finance its deficits. But America should not want the world to be yoked so tightly to its willingness to generate demand. Such imbalances are at the root of this crisis.

As Mr Zhou says, a reserve supercurrency could be created through further issuance of the International Monetary Fund’s Special Drawing Rights – the IMF’s in-house reserve asset. To enable and encourage take-up, he proposes wider uses for the SDR and giving some surplus countries’ reserves to the IMF for it to manage. Married with other necessary reforms, this plan would also empower the IMF to act more flexibly. Good.

But China’s dollar-heavy reserve accumulation was not just insurance – it supported an aggressive, mercantilist trade policy. Beijing kept its currency weak to bolster exports and measured success in terms of how export-dependent it became. Mr Zhou’s proposal is useful and constructive – but China should still raise domestic consumption. It must not just replace its mountain of dollar assets with heaps of other currencies.

China has acted wisely in the recession, expanding demand with government spending. Beijing now wants to play an active role in reshaping the world monetary order. This outward-looking view should be welcomed. But China still has work to do at home.

Copyright The Financial Times Limited 2009
FT.com / Comment & analysis / Editorial - China?s plan to end the dollar era

my home internet connection has of late been squirrely and this is the sort of thing that is reported more outside than inside the american media bubble---but this is interesting.

apparently, when this idea was initially floated, geithner said it was interesting, which immediately set off a run away from the dollar on the part of currency speculators:


but think about this.

first, in case anyone still actually believes that the current economic and ideological situations are not quite profoundly about contemporary politics, the political balance of power, the transnational order in general, this should put an end to that.

what's being proposed here is the end of the entire post-1945 socio-economic order.
it's the end of american empire, folks, at the symbolic level anyway....

but strangely, the ny times and other outlets are focussed on the proposals which would expand state power in the states, even as the power of the american state is coming under very fundamental question.

meanwhile, the disagreements with the european union over strategy--and these too are very basic disagreements, appears to be widening.

and then there's this:
Alarm as government debt auction fails | Business | guardian.co.uk

so for the moment:

what do you make of the chinese proposal?
the financial times edito i bit above makes arguments both ways, but puts aside most of the political ramifications of it--and the symbolic ramifications---to concentrate of the effects of loosening up transnational drains on dollar supplies.

what do you make of the international situation that's unfolding?
are you paying attention to it or not?

what do you make of the lack of international/transnational co-ordination of efforts to deal with this crisis?

personally, i think that this is far too big to be addressed by nation-states and that the failure to begin cobbling together some kind of consensus and institutional infrastructure may end up being THE mistake...but it's still a bit early to know this.

at the same time, if you step back from the tiny fevered world of american press coverage and look at the bigger picture, things do not at all look good.
a gramophone its corrugated trumpet silver handle
spinning dog. such faithfulness it hear

it make you sick.

-kamau brathwaite

Last edited by roachboy; 03-25-2009 at 01:30 PM..
roachboy is offline  
Old 03-25-2009, 03:16 PM   #2 (permalink)
tisonlyi's Avatar
The US debt auctions haven't gone too well this week either, instead of bringing yields/rates down QE seems to have been marching them ever outwards.

I think Mr Bond Market is drawing his line in the sand.

This could easily get very ugly, very quickly.
"I do not agree that the dog in a manger has the final right to the manger even though he may have lain there for a very long time. I do not admit that right. I do not admit for instance, that a great wrong has been done to the Red Indians of America or the black people of Australia. I do not admit that a wrong has been done to these people by the fact that a stronger race, a higher-grade race, a more worldly wise race to put it that way, has come in and taken their place." - Winston Churchill, 1937 --{ORLY?}--
tisonlyi is offline  
Old 03-25-2009, 04:26 PM   #3 (permalink)
Easy Rider
flstf's Avatar
Location: Moscow on the Ohio
It seems to me that China is somewhat between a rock and a hard place. They need a strong dollar to continue exporting to us at current levels and therefore probably don't want to take action that would weaken it.
flstf is offline  
Old 03-25-2009, 04:36 PM   #4 (permalink)
tisonlyi's Avatar
You could say that, or you might take the view that the Chinese aren't convinced that the US as a future market is not going to remain at this lower level or regain its recently held position.

If that was the case, they'd be looking at any ways and means possible of maintaining as much of the value they currently hold in dollars - without threatening a Suez-esque bankrupting option - in some other way.
"I do not agree that the dog in a manger has the final right to the manger even though he may have lain there for a very long time. I do not admit that right. I do not admit for instance, that a great wrong has been done to the Red Indians of America or the black people of Australia. I do not admit that a wrong has been done to these people by the fact that a stronger race, a higher-grade race, a more worldly wise race to put it that way, has come in and taken their place." - Winston Churchill, 1937 --{ORLY?}--
tisonlyi is offline  
Old 03-25-2009, 04:37 PM   #5 (permalink)
Wise-ass Latino
QuasiMondo's Avatar
Location: Pretoria (Tshwane), RSA
The other question is what would they replace the dollar with? A fractured Euro? An artificially depreciated Yuan?

The truth is that there are no alternatives to the dollar. The Euro was a legitimate contender, but with the EU on the verge of imploding because richer nations refuse to help out smaller ones, I don't think they want to bank their reserves with that currency.
Cameron originally envisioned the Terminator as a small, unremarkable man, giving it the ability to blend in more easily. As a result, his first choice for the part was Lance Henriksen. O. J. Simpson was on the shortlist but Cameron did not think that such a nice guy could be a ruthless killer.

-From the Collector's Edition DVD of The Terminator
QuasiMondo is offline  
Old 03-25-2009, 04:47 PM   #6 (permalink)
tisonlyi's Avatar
A basket of currencies was mooted in one of the articles, if you take the time.

Similar to the forerunner of the Euro, the Ecu.

There _are_ alternatives to the dollar, no matter the self-serving Anglo-Saxonian fantasies. The lack of QE/money printing activity within the Euro area at the moment is actually a strong argument in its favour.

The history of Euroland will ensure the unity of the Euro, no matter what. If you've ever been around and seen the dark-tourism sites/bullet holes/burned out buildings as memorials that remain... You'll get the point. No-one in Europe has forgotten what happens in a fractured Europe and to the components of supranational bodies that split up. Watched 'Death of a Nation' recently?
"I do not agree that the dog in a manger has the final right to the manger even though he may have lain there for a very long time. I do not admit that right. I do not admit for instance, that a great wrong has been done to the Red Indians of America or the black people of Australia. I do not admit that a wrong has been done to these people by the fact that a stronger race, a higher-grade race, a more worldly wise race to put it that way, has come in and taken their place." - Winston Churchill, 1937 --{ORLY?}--
tisonlyi is offline  
Old 03-26-2009, 01:21 AM   #7 (permalink)
Location: Melbourne, Australia
It sounds like they are gently signaling for feedback and/or that policy might change.

As I understand it, this is mainly about what China does with it's yuan. I don't see that it's an issue for us in other countries that have floating currencies.


Unless of course - China starts buying our local currency (or stuff denoted in it), hence pushing it up. Is that correct?
Nimetic is offline  
Old 03-26-2009, 01:48 AM   #8 (permalink)
tisonlyi's Avatar
China has been buying dollars/treasuries on a large scale and financing the US debt doom to a large degree for 10-20 years or so.

The problem is, now, if they stop buying in similar fashion to their previous appetite (de facto pushing up interest rates or forcing more naked money printing) or start to move more quickly away from dollars to Euros (which they were doing as stated policy last year, but I've not seen any comment on for the last 6 months).

With regards to the Yuan and the Yen, China and Japan being the two largest foreign holders of US debt, their scale of purchases would seem to ONLY be going down. As their export surpluses to the US deteriorate, the recycling trade from surplus dollars going back to the US as bond purchases will be scaling down.
"I do not agree that the dog in a manger has the final right to the manger even though he may have lain there for a very long time. I do not admit that right. I do not admit for instance, that a great wrong has been done to the Red Indians of America or the black people of Australia. I do not admit that a wrong has been done to these people by the fact that a stronger race, a higher-grade race, a more worldly wise race to put it that way, has come in and taken their place." - Winston Churchill, 1937 --{ORLY?}--
tisonlyi is offline  
Old 03-26-2009, 05:33 AM   #9 (permalink)
Cynosure's Avatar
Location: the center of the multiverse
"...And thus the Yellow Dragon conquered the world without shedding a drop of blood."

Cynosure is offline  
Old 03-26-2009, 06:49 AM   #10 (permalink)
roachboy's Avatar
Super Moderator
Location: essex ma
here's a couple articles that give some background to the chinese call to go off the dollar as the reference currency:

Fan Gang on the China-Dollar Conundrum

From the WSJ’s China Journal blog:
fan_gang_C_20090325080607.jpgAssociated Press
General Manager of the Bank for International Settlements Malcolm Knight and Fan Gang, director of the National Economics Research Institute, in 2006.

The pan-Pacific debate over the dollar’s standing as a global currency continues. On Tuesday, U.S. President Barack Obama dismissed suggestions raised by China’s central bank governor that the world needs a new international currency that can take the place of the dollar in international reserves. Fan Gang, a prominent economist and advisor to China’s central bank, watched Obama on CNN in his Hong Kong hotel room, but says he was hardly convinced.

“Of course” an alternative is necessary “in the long run, if we want to avoid the cyclical problems associated with the dollar standard,” Fan says in an interview with the Journal on Wednesday. Besides being director of China’s National Economic Research Institute, a nongovernment think tank, Fan sits on the monetary policy committee of the People’s Bank of China, which means his views carry some weight in Beijing.

Fan describes the dollar as a kind of transmission mechanism for risk. The current crisis, he says, may have begun in the U.S. and Europe, but because of the dollar standard, “the risk of highly leveraged institutions has spread to other countries.”

The onus therefore is now on the U.S. in particular to better regulate its banks and hedge funds for the sake of the global economy, he believes. Next, Fan says, “we should monitor capital flows, and monitor leverage, and this information should be reported to the countries where (institutions) are investing.”

International trade in goods is heavily monitored and regulated, says Fan. It therefore makes no sense that “you have a regulated real market and an unregulated financial market.”

Of course, China is pretty good at keeping a close eye on capital flows. It allows only limited convertibility of its currency, the yuan, and tightly restricts foreign investment in the country’s capital markets. Fan, who asserts that “Chinese prudence has paid off,” says capital controls are “better for developing markets.”

(Later, speaking at a Credit Suisse investment conference here over lunch, Fan reiterated his line about prudence paying off. Privately, one critic in the audience quietly scoffed. China happily financed the U.S. trade deficit by buying low-yielding Treasurys for years, he said. How prudent was it to offer cheap vendor financing to a big customer with a lot of debt?)

Fan says while China is eager to keep its currency stable, there is pressure to let the yuan fall — “not just domestic pressure, but regional pressure,” as other Asian currencies weaken, making them more competitive. Rather than let the yuan fall against the dollar, he suggests that China should make reference more to the other currencies in the basket it uses to set the yuan’s exchange rate. “Eventually, China’s currency should be related to other currencies, not just the dollar,” he says.

Fan worries that the Fed’s quantitative easing is raising the risk of dollar inflation and devaluation, which “is a concern not just for China but for everyone.” He also believes monetary problems will fuel more “China bashing” in the U.S. from members of Congress that have previously railed against China’s currency policies. “In the future, you will see, when the dollar devalues, these senators will come back,” says Fan. Interestingly, Fan’s excitement level seems to peak when he’s asked why China is choosing to speak up now about the dollar.

“We have been talking about the risk of the dollar and dollar devaluation for a long time,” he says. “We have been talking about U.S. causes behind the imbalances in the trade deficit. No one listened. This is a time to get noticed.”
Fan Gang on the China-Dollar Conundrum - Real Time Economics - WSJ

and this from china view:

Dollar's dominance to be challenged at G20 summit
English_Xinhua 2009-03-26 21:01:45 Print

Special Report: Global Financial Crisis

BEIJING, March 26 (Xinhua) -- As the global financial crisis continues to bite hard, the dominant position of the U.S. dollar is under widespread doubt.

That has prompted major economies to issue a series of international financial market reform proposals challenging the U.S. currency.

Discussions at the upcoming G20 summit in London also may herald a weakening of the U.S. dollar's status and a far-reaching change of the global monetary system.

Incredulity over U.S. leadership of the world's finances has been accumulating ever since the spreading economic turbulence was linked to the American government's financial policy failure and lax control of its domestic financial market.

The unease was aggravated when the U.S. government decided recently to strengthen its bailout efforts by turning on the "cash-printing machine," which will inevitably further depreciate the dollar and undermine its reserve currency status.

Calls for a reshuffling of the international financial and currency systems are gaining momentum not only from the euro zone, but also from developing nations such as Brazil, Russia, India and China -- known as the "BRIC" countries.

Zhou Xiaochuan, China's central bank governor, published two articles earlier this week, pointing out defects and systematical risks in the current international currency system. Zhou's articles also call for creative reforms to improve the system.

Zhou said the ongoing financial crisis is a testimony to the inherent deficiencies of the world's current monetary system, and proposed to create a super-sovereign reserve currency as part of the reform.

In a clear reference to the U.S. dollar, Zhou said the desirable goal of the international monetary system is to "create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies."

The Special Drawing Right of the International Monetary Fund has the potential to act as a super-sovereign reserve currency, he said.

Following Zhou's comments, Chinese Finance Minister Xie Xuren called for a full-scale reform of the global financial system to diversify international currencies, improve regulation and give developing countries a bigger say in economic decisions.

With the same expectations of the G20 summit, Russia has announced a similar call for the introduction of a super-national reserve currency as part of the country's proposal to reform the international monetary and financial system at the summit.

Russia said the bill has gained support from the other three "BRIC" members as well as from South Korea and South Africa.

Analysts said leaders of the euro zone are harboring higher ambitions and will make full use of the G20 summit to exert their appeals as the dollar's loss of confidence is leaving more leverage for the already strong single European currency.

"Euro zone countries regard the financial crisis as a crucial opportunity to shake the core status of the United States in the world monetary system," said Zhang Ming, a scholar with the Chinese Social Science Academy's world economics and politics institute.

On the reconstruction of the world monetary system, the United States will suffer from a huge blow from the European countries, especially France and Germany, which may come up with some strategies aimed at undermining the dollar and strengthening the euro, Zhang said.

Analysts said the G20 summit will be a combat field for the United States, the euro zone and rising economies concerning the world monetary system reform.

Although the establishment of a new reserve currency is a long-term goal, what is in sight is a mounting threat to the dollar's long-lasting dominance.
Dollar's dominance to be challenged at G20 summit_English_Xinhua

so what do we have here?

first off, there is a problem with the position occupied by the dollar, which has mostly to do with the fact that the international currency regime was created in the early 1970s as a transposing of the bretton woods arrangement. the problem is that the dollar is both inside and outside the system, an instrument for both acting with and acting upon it. so long as the us was in a position that was more or less imperial, there was no necessary contradiction in it---but this is no longer the case.

the proposal to go off the dollar as reference currency comes from several directions, most of which are outlined in these pieces: as a an instrument within the currency system, the dollar reflects (indirectly) the fluctuations in overall economic position of the united states; as reference currency, the dollar reflects the political position of the united states after world war 2. the argument appears to amount to: so long as the former did not undermine the latter, it was acceptable for the system to shift as a whole in ways that aligned with the shifts that took place to the currency as a player within the system.

i'm not sure i'm explaining this well--maybe someone else can do better....feel free.

you could say that the alignment of the united states as arbiter of the stability of the post-73 modalities of capitalist organization was a function of historical factors and inertia---and power---but now the power has been slipping away (thanks in significant measure to the glorious bush administration), the economic position is clearly unstable and the "leadership" that has come out of the united states, particularly since the reagan period, has (finally) been shown to have been entirely insane---even as there have been beneficiaries within that insanity--and china principal among them. so the political situation is now such that china is sweating getting hammered on the bonds etc. that it purchased in huge quantities (which floated the irrationalities of neoliberalism to a very significant extent)---so self-interest combined with opportunity (political, ideological and economic weakness on the part of the united states) explains the proposal....

the proposal itself is not to substitute the yuan for the dollar, but rather to move to a diversity of references.

how would this work?

one problem this would create is a multiplaction of media across which values could be expressed or measured. this is not insumountable by any means---but it does indicate at the symbolic level that a VERY different global captialist arrangement is beginning to take shape than has been the case, and that at the very least the period of the imperial united states is ending.

personally, i don't think this is a bad thing----but to deal with it will require a serious rethinking of how the american economy is organized, which has to be of a piece with a reorientation of it's direction. the older systems are probably finished--i wonder if you'll see the consequences of this shaking out in agriculture, in the undermining of the system of dumping overproduction that we quaintly called "free trade"---which would mean that the centralized monocrop heavily subsidized model is heading for serious serious trouble--because it was a function of american POLITICAL power that this model was able to inflict its irrationalities on the southern hemisphere...

that's a little precis....but i could be wrong.
what do you make of this?
a gramophone its corrugated trumpet silver handle
spinning dog. such faithfulness it hear

it make you sick.

-kamau brathwaite
roachboy is offline  
Old 03-26-2009, 11:02 AM   #11 (permalink)
tisonlyi's Avatar
You can think of the Dollar's reserve status and the willingness/need of trading nations to hold vast swathes of t-bills or actual dollars as the proverbial big stick that you were advised to walk softly whilst carrying.

It was a weapon of enormous significance, which combined with the predominance of the US in organisations like the GATT,WTO, IMF, World Bank, etc gave the US imperialistic powers over a very, very large portion of the global economy.

You weren't walking softly though, the big stick was being wielded at every opportunity to expand economic hegemony through things like 'deregulation' of markets in economically afflicted nations - and practically every 3rd or 2nd world nation has suffered some sort of economic affliction since the 70's. In one way or another.

There was one direct route to the erosion of that massive stick to beat the rest of the world:


With every t-bill issued the stick splintered, cracked and fell apart. Little by little, it's been disintegrating since the late 70's/early 80's. To my way of the thinking, the rest of the world was so used to cowering before the almighty Dollar that it took a long while for the rest of the world to realise that although the owner of the aforementioned stick was still throwing its arms about, the stick had disappeared.

Some USians I've spoken to seem to think that the US is still a global creditor. The US has been a global debtor since the late 80's. Some other nations do owe you debts, but those sums are dwarfed by what you yourselves owe to others.

The power of the stick has been accumulating in China, Japan, the UK(no really!), India, the oil producing states, etc, etc... such that no-one is dominant any more, not the US, not any one of those individual nations who hold dollars.

Although, they all collectively and individually hold a financial nuke in their hands. Should they publicly, rapidly start a large sell-off of t-bills and/or start converting large portions of their dollar reserves into other currencies, then the effect would be dramatic.

The current, massive run towards the dollar and t-bills hasn't really been so much about 'a flight to quality' as 'a massive rush to sell off assets denominated in other currencies so that we can buy assets that let us pay our US Dollar denominated debts'. That enormous bout of deleveraging started last summer and is still going on. It'll probably continue for years.

The problem though, as I think everyone can see, is that even in the face of that massive trade in deleveraging to pay off debt, the dollar still seems to want to fall and the spending/money printing by the FED is not helping that.

Basically, Mr Bernanke is well on the way to something he stated some 7 years ago (ctrl+f "helicopter"): A helicopter drop of money into the economy to inflate at all costs. The store of value in your money, be damned.

That speech is and should be terrifying to anyone who reads it and wonders what the play book is right now, or where the US and the UK are headed.
"I do not agree that the dog in a manger has the final right to the manger even though he may have lain there for a very long time. I do not admit that right. I do not admit for instance, that a great wrong has been done to the Red Indians of America or the black people of Australia. I do not admit that a wrong has been done to these people by the fact that a stronger race, a higher-grade race, a more worldly wise race to put it that way, has come in and taken their place." - Winston Churchill, 1937 --{ORLY?}--
tisonlyi is offline  
Old 03-26-2009, 08:18 PM   #12 (permalink)
immoral minority
ASU2003's Avatar
Location: Back in Ohio
Oil, Gold, & a few other raw materials would be a good world currency.

I kind of worry about this getting bad if it isn't dealt with. And I only give the current plan a 50/50 chance of turning out ok.
ASU2003 is offline  

china, dollar, end, era, proposes

Thread Tools

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are On
Pingbacks are On
Refbacks are On

All times are GMT -8. The time now is 06:02 AM.

Tilted Forum Project

Powered by vBulletin® Version 3.8.7
Copyright ©2000 - 2023, vBulletin Solutions, Inc.
Search Engine Optimization by vBSEO 3.6.0 PL2
© 2002-2012 Tilted Forum Project

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130 131 132 133 134 135 136 137 138 139 140 141 142 143 144 145 146 147 148 149 150 151 152 153 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 176 177 178 179 180 181 182 183 184 185 186 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 208 209 210 211 212 213 214 215 216 217 218 219 220 221 222 223 224 225 226 227 228 229 230 231 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 263 264 265 266 267 268 269 270 271 272 273 274 275 276 277 278 279 280 281 282 283 284 285 286 287 288 289 290 291 292 293 294 295 296 297 298 299 300 301 302 303 304 305 306 307 308 309 310 311 312 313 314 315 316 317 318 319 320 321 322 323 324 325 326 327 328 329 330 331 332 333 334 335 336 337 338 339 340 341 342 343 344 345 346 347 348 349 350 351 352 353 354 355 356 357 358 359 360