Wary of Dollar, China
Wants Super-sovereign Currency
By Zhou Xin and Chris Buckley
June 26, 2009 -- BEIJING, June 26 (Reuters) - China's central bank
renewed its call on Friday for the creation of a super-sovereign
reserve currency to reduce the dollar's global domination, which it
said had worsened the financial crisis.
In its annual financial stability report, the central bank did not
mention the dollar by name but said it was a serious defect that
one currency should tower over all others.
"An international monetary system dominated by a single sovereign
sovereign currency has intensified the concentration of risk and
the spread of the crisis," the People's Bank of China said.
In thinly-veiled criticism of loose U.S. monetary and fiscal
policies, the PBOC urged the International Monetary Fund to
exercise closer supervision of the economic and financial policies
of major reserve-issuing countries.
The 170-page report dusted off a call by the bank's governor, Zhou
Xiaochuan, for the creation of a super-sovereign currency.
In an essay in late March, Zhou caused a stir by suggesting that
the Special Drawing Right, the IMF's unit of account, could
eventually displace the dollar as the principal reserve
currency.
Friday's report not only advocated a full role for the SDR but said
the IMF should be entrusted with managing a portion of its member
countries' foreign currency reserves.
"To avoid intrinsic shortcomings in using a sovereign currency as a
reserve currency, we need to create an international reserve
currency that is divorced from sovereign states and can maintain a
stable value over the long term," the report said.
DOLLAR DILEMMA
Chinese officials have expressed growing concern in recent months
that massive U.S. fiscal and monetary stimulus will generate
inflation and drive down the dollar, handing Beijing big losses on
its vast portfolio of U.S. bonds.
Bankers say China holds perhaps 70 percent of its $1.95 trillion in
official currency reserves in dollars.
"When a national
currency becomes the global price-setting currency for primary
products, the trade settlement currency and the reserve currency,
that national currency has great difficulty attending to both
domestic monetary policy goals and the reserve currency needs of
various countries.
"And the economic development model of debt-based consumption is
most difficult to sustain," the report said.
The PBOC also levelled criticism at international banking rules,
drawn up by the Basel Committee on Banking Supervision, which it
said had paid inadequate attention to the risks inherent in complex
credit securities.
Oversight of derivatives had also been lax, the report said.
Turning to the domestic economy, the PBOC said the slump in global
trade caused by the international financial crisis would spawn
risks for China's banks as exporters ran into difficulties.
By weighing on incomes, the crisis might also slow China's drive to
develop a consumption-led economy, the PBOC said.
The central bank also said China could face inflationary pressure
in the medium- to long-term as a result of liquidity now being
pumped into the global financial system, coupled with extensive
deficit spending by many governments.
(Reporting by Zhou Xin, Aileen Wang and Chris Buckley;
Writing by Alan Wheatley; editing by Patrick Graham)
Copyright 2009 Reuters
http://informationclearinghouse.info/article22923.htm
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