October 4, 2012
China is actively taking steps to phase out the US dollar which will decrease volatility in oil and commodity prices and deride the ‘exorbitant privilege’ the USA commands as the issuer of the reserve currency at the centre of a post-war international financial architecture which is now failing.
In 1971, U.S. Treasury Secretary John Connally said, “It’s our currency and your problem”.
China is frustrated with what it sees as the US government’s mismanagement of the dollar, and is now actively promoting the cross-border use of its own currency, the yuan, or also called the renminbi, in trade and investment.
China’s goal is to decrease transactions costs for Chinese importers and exporters.
Zha Xiaogang, a researcher at the Shanghai Institutes for International Studies, said Beijing wants to see a better-balanced international monetary system consisting of at least the dollar, euro and yuan and perhaps other currencies such as the yen and the Indian rupee.
“The shortcomings of the current international monetary system pose a big threat to China’s economy,” he said. “With more alternatives, the margin for the U.S. would be greatly narrowed, which will certainly weaken the power basis of the U.S.”
Zha’s comments were highlighted at a seminar in Bahrain this week on the geopolitics of currencies organized by the International Institute for Strategic Studies, a London think tank.
Full story here.
This article was posted: Thursday, October 4, 2012 at 7:44 am