By Felix Brooks
A people’s Bank of China known as Zhou Xiaochuan makes a proposal to create a new international reserve currency. A global organisation that can create and control global liquidity is to manage the super-sovereign reserve currency.
Zhou (China) proposes a global institution to maintain the “one world Currency”, and carrying out of world trade using the money. Goods like gold and oil would have prices in the world currency. On the other hand, each country would retain and maintain the existing currency. Manage monetary and fiscal policy within each country so that to create a relationship with the one world currency at an optimal ratio showing the economic conditions that are existing in each country.
China is most probably looking for a loophole to achieve the biggest holder of US Treasuries. By now China holds the largest foreign exchange reserves in the world. Chinese have lost confidence in the policymakers’ of US ability to think and take action in an economically prudent fashion.
Continued massive US deficit spending would result to devaluation large pile of US Treasuries, and Chinese have this information. Chinese would start a massive move out of US dollar denominated assets. They are thinking about taking the action without harming themselves. Thus China believe creating a global currency is the best solution, China is looking for another solution to create equilibrium and move out of US dollar in a controlled and leisurely pace.
Because the US dollar is the reserve currency for the globe, that move would not be possible. When there will be a global currency and separation in the exchange rates of Renminbi, Yes, Euros, Yen and US dollars. To the global currency, insulation will take place on the Chinese investment in US dollars. Chinese would buy gold and oil using global currency but now these two products are traded using US dollar.
I don’t expect central bankers around the globe to support such a global monetary policy in public. The proposal of China came after Russia made such proposal. French President Nicolas Sarkozy has been calling for demotion of US dollar as the premier currency. World Bank chief and Nobel Prize winner Joseph Stiglitz supports global currency too. Statements from India and Brazil are supporting the world currency.