China Takes Aim at Dollar

clipped from online.wsj.com China called 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, 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. Mr. Zhou's proposal comes amid preparations for a summit of the world's industrial and developing nations, the Group of 20, in London next week. At past such meetings, developed nations have criticized China's economic and currency policies. This time, China is on the offensive, backed by other emerging economies such as Russia in making clear they want a global economic order less dominated by the U.S. and other wealthy nations.

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China’s proposal may not affect the dollar in the short term, but introducing this issue now is a means of alerting the world this could become a reality.

From the article: “Central banks around the world hold more U.S. dollars and dollar securities than they do assets denominated in any other individual foreign currency”. So, we are almost at the point of one world currency already.

International leaders are beginning to see an advantage of having one world currency so that fluctuations in one market would not disrupt the rest of the world, as is the current situation.

Moving to a reserve currency that belongs to no individual nation would make it easier for all nations to manage their economies better, because it would give the reserve-currency nations more freedom to shift monetary policy and exchange rates. It could also be the basis for a more equitable way of financing the IMF.

Russia made a similar proposal just this month