Zhou Xiochuan, head of China’s central bank, published a paper yesterday urging the creation of an international reserve currency independent of the dollar and under the control of the International Monetary Fund. He noted that there is an inherent conflict between domestic political needs and the interest of the entire financial system and implied that the United States has leaned too far towards the former.
In my New Atlanticist review essay, “China: We Need New World Currency,” I concede that Zhou has a point.
[N]ow that the Fed is repeatedly pumping out hundreds of billions — even a trillion dollars — seemingly on whim in an effort to jump start the financial system, that era is surely behind us, at least for a while. China’s $2 trillion in Treasury holdings will no doubt be radically reduced in actual value — the ability to purchase goods and services.
Given available alternatives, China will simply have to eat that loss. But one can’t blame them for seeking to provide less risky alternatives for the future.
Much more at the link.
