China Currency Report Expected Less Gentle from Geithner
Will President Obama stand by his endorsement when he was a senator of the Fair Currency Act? How can the Obama administration expect the Chinese to keep buying US Treasury bonds and not have right to stabilize the currency market which could be a Waterloo for China if it allowed free market forces to operate? The answers to these questions should be answered imminently.
Zhou Xiaochuan's Proposal and the Future of the RMB
It seems likely that the current international crisis will promote the international use of the RMB and accelerate movement toward full RMB convertibility. Once that has milestone has been reached, which could happen relatively soon - say 5-10 years - the main obstacle to the use of the RMB as an international reserve currency will have been removed. If by then no agreement has been reached on Zhou Xiaochuan's proposal for international monetary reform, or possible variants thereof, it is likely that we will see the spontaneous emergence of the RMB as a reserve currency, but that would also require – in addition to full convertibility – substantial further development of China's domestic capital markets.
China Determined to Trade More with RMB, Less with USD
The Chinese government has decided to launch pilot programs for transnational RMB settlement in Shanghai and four cities in Guangdong Province, to persuade more trading partners to accept RMB, whick could lead to RMB convertibility under capital account.
He Who Has the Gold Makes the Rules
He has captured the attention of the world, especially the US stock market which does not know how far China will push on this white paper at the London G-20 meeting. Does he want to downgrade the US dollar from the international monetary system? Can he really have a reserve asset which is stable? Can he really have a flexible asset that can expand when needed without expanding too much? Can he really get other nations to walk away from "credit-based" national currencies as reserves?
Zhou Xiaochuan's Vision: Imitating ECU and Empowering SDR
Zhou Xiaochuan clearly stated China's interests, that China's RMB should be included in SDR's currency basket, and that GDP should be a factor in deciding the currencies' percentage in the basket. China is making no secret of the fact it wants to gain more influence in the international monetary system.
China Looking to the IMF as Alternative to USD
With the Fed having decided to pile into US government debt, and on the eve of G-20 summit in London, the People's Bank of China (PBoC) Governor Zhou Xiaochuan, along with the chief of the State Administration of Foreign Exchange, has sent a deliberate message that China may seek an alternative to the US dollar as its forex reserve currency by cooperating with International Monetary Fund.
China Promotes Issuance of IMF Bonds to Diversify Its Forex Assets
Besides promoting the IMF to take a stronger role in supervising and stabilizing international currency issues, China is also seeking a way to diversify and more securely operate its forex reserve assets, such as buying bonds issued by the IMF, instead of merely continuing to accumulate US national debt. This would be conducive not only to China's forex asset security, but also to the IMF exercising influence in the current financial crisis.
China's Forex Reserve Exposed to Huge Risk by Fed's Debt Purchase
We need the US government to guarantee the market value of its government debt, but Obama's promise is not trustworthy. The China Investment Corporation, China's sovereign wealth fund, should also conduct positive investment in global resources. China can partly offset the influence of USD depreciation and global inflation by diversifying its foreign exchange reserve.
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