The decision by the United States to print 300 billion dollars in fresh money is causing worldwide concern - but perhaps nowhere more so than in China. Beijing is even considering dumping the US dollar as the international reserve currency. In fact, the US move has angered all of Asia. When a financial crisis hit the continent ten years ago, there was no question of churning out more money. Instead, the IMF imposed expensive loans.
Who doesn't long, in times of crisis, for a stable world currency, one which restores calm and strength to markets and provides a solid basis? The Bancor is just such a currency. It was conceived in the 1930s by the British economist John Maynard Keynes as a new global reserve currency.
The currency's value was to be tied to a number of raw materials, with gold as the main one. Not the Bancor, however, but the dollar became the international reserve currency, and it was linked to gold only. When the dollar's fixed exchange rate was abandoned in the 1970s, the currency gradually lost its authority.
Little confidence in US greenbacks
Now that the US Federal Reserve has started printing more dollars in order to solve some of the country's credit problems, China's confidence in the dollar is rapidly dwindling. So much so, that the president of China's central bank has proposed to replace the dollar with the Bancor as the international reserve currency.
Haico Ebbers, professor of international economy at the Nyenrode Business University, admits that the American measure is not without risks.
As the top US creditor, China is the biggest holder of dollar assets. Not surprisingly, Beijing is concerned that mounting inflation could devalue the dollar, which in turn would considerably devalue its assets. Ebbers emphasizes, however, that China's proposal to introduce the Bancor should not be taken too seriously. They are, he suggests, little more than warning shots ahead of the G20 summit.
China, however, will try to use the summit to roll back the dollar as the global reserve currency. As an alternative it's thought it will propose a combination of several currencies, including the dollar, the Chinese renminbi and the euro.
Printing more money won't bring chaos
Professor Ebbers does not expect any major chaos as a result of the Fed's decision to print more money. Chances that China could turn it's back on the US completely - which would be disastrous for the country's economic recovery - are minimal, he thinks.
China's economy, after all, relies heavily on its US exports, stresses Professor Ebbers. Nor can it dump its dollar assets, which would only add to the currency's devaluation and so further increase its losses.
Karel Jansen, Asia specialist at the Institute for Social Studies in The Hague, warns, however, that there is a risk that China may, at some point, no longer be able to finance America's national debt or invest in its economy. After all, due to the crisis, which has caused its exports to the US to drop dramatically, China's revenues are plummeting. In addition, to weather the crisis China is now investing heavily in its own economy.
Resentment in Asia
Regardless of all this, America's move to print more money has caused deep resentment across Asia. Now that interest rates have been slashed to nearly zero, Washington simply prints extra dollars. Countries such as Thailand and Singapore owe the IMF large dollar debts but were not allowed to print more dollars.
If Washington wants to restore confidence in the US and the IMF at the upcoming G20 summit, it will have a lot to explain.
*RNW translation (cl)
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US Federal Reserve,
yuan
François,
02-04-2009
- Netherlands
Carlos it seems you misunderstand the concept of global trade. The prices of commodities oil, coffee, platinum e.t.c. are determined on an international basis yet they come from very different places with intolerant masses as you call them (which has nothing to do with economics by the way). With regard to Europe remember some of the eastern European countries were actually communist. We europeans are actually quite diverse and in some cases very intolerant (recall WW 1 and 2). In the USA itself you have perhaps the most diverse peoples on the planet. To cut a long story short all you need is the govts. of the world to agree to pursue this goal. In Africa they are already pursuing a single currency. So if Latin America comes up with a regional currency, ASEAN comes up with one and Africa gets one, then the next stage will simply be to merge them. The price of commodities is determined by supply and demand. Now for those who say no one forced China and others to use the dollar as the reserve currency that right there is the argument to establish an international reserve currency. What you are saying in other words is that the dollar doesn't have to be the reserve currency and anyone who is dissatisfied can chose another reserve currency. So you shouldn't be objecting to China's proposal. Back to Carlos argument that there are winners and losers offcourse in the US despite everyone using the dollar not everyone is equal right? So it is too in the EU. A single currency doesn't mean eveyone will be equal. However it will allow everyone an equal opportunity to develope without using a currency as an excuse to impoverish. The theory you should first agree is desirable then the issue is implementation. What would you say if we all agreed to use the dollar as our national currency in the whole world? Zimbabwe has already decided to adopt it as it's national currency because of it's inability to control it's own. So the issue is one of control. The only question is where and who will print the currency. The US already can show us the way with regard to individual states being in charge of taxation and fiscal matters. The EU already has a working example. Poland and the Netherlands are very different states with their own budgets and priorities but they share the euro. So those who say a single currency cant work are not very genuine. They have a hidden agenda of domination, divide and rule and manipulation. The IMF or a combination of the different central banks of the world can meet and chart a way forward towards achieving this noble goal. We can then compete in the same way different companies do within the US or EU only without thinking of currency fluctuations. Think again people it's a good idea.
Carlos Borjal,
01-04-2009
- USA
Francois: Not all economic system are created equal. What you are saying about one universal currency does not work in the real world. You can put anything in theory but fielding it is another matter. Euro works in Europe because they have a reasonably good fiscal discipline, stable governments, similar economies, and tolerable masses. Not so around the world. The values of commodities can’t be the same in every part of the planet it’s an outrageous concept to put universal price tags on everything. What you buy should be comensurate to the cost of manufacture according to your local unit of measure. This is not a one-size-fits-all kind of world, it's ridiculous and actually dumb as an economic theory. The reality is, in a free market economy, there will be winners and there will be losers and there will be rich and and there will be poor and that’s that. Get over it and live with it.
Steve,
01-04-2009
- USA
Carlos, I completely agree with you. I do not agree with the US's decision to use inflation to pay debts but it was not us that forced our currency on anyone. Mr. Putin bashes the "global dollar" on almost a daily basis and wants the Ruble to replace it in the East. During all of his nonsensical blathering he fails to mention the largest equity market in his country is US Dollar denominated. This was not us forcing it on them, but rather the Russians realizing how unstable the Ruble is when it is routinely manipulated by an arrogant dictator. Vera, as much as you like to blame all of your problems on the US the fact is many European banks, especially in the UK, Germany, the Netherlands, and Switzerland contributed to the collapse just as much as American financial institutions. Yes even your beloved Deutsche Bank was involved. Apparently greed is not only on the West side of the Atlantic. You will not be paying for our decline if it comes to that. Europe would desert the US at the drop of a hat as soon as the relationship became unprofitable for them, so don't loose any sleep worrying any money might come out of your pocket.
François,
31-03-2009
- Netherlands.
Rabbit I think your assessment is correct only in reverse. The capitalist system is a creation of the west. The WTO is a creation of the west. It was the US through granting China MFS (Most Favoured nation Status) that brought China into the capitalist system. It is the US sub-prime market that has got everyone in trouble. It's deregulation that led to AIG bonuses and the greed in Wall Street. It is the greed of the west that has always triumphed over others. Look what we did to Africa - enslave, colonize, corrupt and con. The world bank and IMF went there and encouraged Africa to privatize, layoff civil servants who were the only breadwinners for the family and remove all subsidies to farmers. The US and EU the richest economies in the world though continue to subsidize to this day leading farmers in the EU to dump milk in slurry pits and the world market leading to distorted prices. The west tells others you cant print your own currency otherwise we will devalue your currency and you will suffer inflation. They on the other hand can run deficits into the trillions and print hundreds of billions. When China suggests a new currency not their own by the way they get push back that they dont abide with WTO rules. Isnt there a mechanism where those rules are addressed within WTO? The real problem is that China can produce goods at very cheap prices that the west cant match. The rest of the world wants cheap goods including right here in the west. Remember David Kay China's economy is not only based on WallMart. Many American companies have invested billions in China to take advantage of China's market which is massive. What China has suggested is not a negative idea. Actually by the creation of a reserve currency which isn't dominated by any country it removes the pressure the US now has to endure when it chooses to print money for it's domestic needs. The problem with the current system now is that we will all pay if the US action causes inflation. To me that's unfair. If China's currency the renminbi or yuan were to be printed it would only affect China but the dollar affects everyone. I agree with Vera G.(Germany) about the IMF and printing cash but this things cannot be too radically changed though they do need to be changed. However a start has to be made and the Chinese idea is a start. Gordon Brown also has a point about a new financial regulation system making it possible to regulate multi nationals. If the IMF board can be reformed to meet the new economic realities and work as it should it is a good idea to have it. If global rules can be standardized as we have done with the capitalist system the human nature will be governed by the rules which will be universal. It's not impossible to enforce the law especially if everyone or rather the majority thinks it's fair and equitable. Imagine if the world had only a single currency no one would try to manipulate it. In any case what would you manipulate it against? It would remove one major cause of inequality and inconvenience. The experience with the euro shows this dream is attainable. People in Europe now concentrate on other aspects of competition rather than worrying what the central bank in France will do with the franc as opposed to the Dutch guilder. I hope people can understand this proposal by the Chinese can be viewed positively. I suspect the reason the west doesn't want to hear of this is because they are the major beneficiaries of the status quo unless offcourse they can manipulate others using a new way.
Vera Gottlieb,
31-03-2009
- Germany
After all the mess that the US has gotten the entire world into, I don't think that this country is in the position to call the shots any longer - and we should not let them. The American "empire" is fading and we should not have to pay for it.
Carlos Borjal,
31-03-2009
- USA
It’s human nature to jump on the bandwagon of whoever has the greatest success. Nobody has told any country in the world to adopt the US dollar to back up their reserves, they did it on their own initiatives for their own selfish reasons and their own versions of greed. But just like the fabled fair weathered friends they would not hesitate to dump you in times of hardship. Such is the human nature of the have nots, the pretenders to the trone, the parasites, and contemptuous people of the world. They’re only around with their big smiles when the going is good . The US will recover from this tragedy as we always did in the past because we are resilient hardworking people. We are the USA fellas, not your second rate run of the mill kind of country. We will emerge from this stronger than ever. Meanwhile, just like the fabled fair weathered friends, why don’t you fellas just go hang around with China, or India, or the Russians. And ah! let’s not forget France, the “epicenter” of Europe. Let’s see what kind of crumbs you will get out from them guys.
Carlos Borjal,
31-03-2009
- USA
Vera: The IMF is dominated by the Europeans. It's the World Bank that the US virtually rules over. Looks to me like you are shaking the wrong tree. Nevertheless, it's the West that controls the world financial system. And as they say, you can run but you could not hide from these guys. And as they also say, they got us all by the balls. China is a historically a paper tiger and it still is a paper tiger today. It's all bark and no bite. Together with India, they are here today and gone tomorrow. Sorry, but they are only a mirage. They are not matured economies and therefore not subjected to normal economic cycles of peaks and valleys that you see in the West over decades of steady growth. God forbid if you'd let them dominate the world. It's like inviting the Hells Angels in a piano recital.
Rabbit,
31-03-2009
- Netherlands
David of Canada:
You said it so well "China sought to gain a controlling influence over the US through debt, and is now learning a hard lesson in how the marketplace ultimately controls the economy" They got their fingers burnt this time.
Francois of Netherlands -- well, perhaps we should look at the history so far of how China plays in WTO. Same old, same old. They want to be in WTO so they can sponge on the benefits of WTO rules, BUT do they keep to the rules so far? Therefore the theory of 'an international supranational financial system' would never work.
Whatever rules or systems we wish to create be aware these are not robots you are dealing with. 'They 'come' to you not because you are good ... they smell goodies! It would be very naive to ignore the true natures of human beings. And believe me, the westerns are generally too sincere and naive when it comes to dealing with nations outside their realms. China is one. They play with different rules. And it is not because the rest of the western world ganging up on China. I think it is because finally the western world understand the games China is playing, and is waking up.
It is generally not easy to recognize conniving act. And perhaps we do not wish to acknowledge we have been conned.
George Kay,
30-03-2009
- U.S.A.
What distinguishes man from the other beasts are financial worries. Money is like muck, not good except it be spread.
One would say, let China dump the U.S. dollar and the U.S. would not purchase anymore or less Chinese goods. The Chinese economy would be in trouble, if Walmart would cease being their best client.
George Kay,
30-03-2009
- U.S.A.
Countries like Thailand and Singapore are not the U.S. Federal Reserve., nor the U.S. Mint. Those countries are not allowed to print U.S. dollars.
Vera Gottlieb,
30-03-2009
- Germany
Whatever is done, STAY AWAY from the IMF! It is an American front and only interested in the financial well-being of the US. The IMF has caused enough pain and misery throughout the world. I too would love to be able to print money whenever I am short of cash. What is good for the goose should then also be good for the gander.
Nitin Kalokhe,
nitin.kalokhe@bsmail.in,
30-03-2009
- India
I feel the only country which will help the global economic crises is Pakistan. It has a able President and very respectful Prime Minister. Aboveall the Pakistani financial system is in very good condition. It is a very smart move by Pakistan not to be part of G20. G20 needs the able guidence of Pakistan. How fast they get is is better for the world economy.
Nitin Kalokhe,
30-03-2009
- India
I feel the only country which will help the global economic crises is Pakistan. It has a able President and very respectful Prime Minister. Aboveall the Pakistani financial system is in very good condition. It is a very smart move by Pakistan not to be part of G20. G20 needs the able guidence of Pakistan. How fast they get is is better for the world economy.
François,
30-03-2009
- Netherlands
True the euro is stable now but it only represents a certain region of the world which is privileged and has been involved in the creation of this mess. Now the reason I support the Chinese proposal to have an international currency composed of a basket of currencies which would include $, €, yen, yuan, CHF, rand and Sterling pound among others is that everyone would then work to ensure their own currency had value. The Americans or Europeans or for that matter the Chinese would no longer misuse their reserve currency status to print money without regard to others. It would also be easier because each of us would keep our beloved currency and allow it to reflect our economic performance. I tend to agree with others here that eventually the most equitable solution would be to have a single currency for the whole world.
sandra,
30-03-2009
- Nederlands
Why don't we go with the Euro, it is more stable then the dollar and all other currencies.
