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China Down on the Dollar


Country wants to replace world's reserve currency.

China wants to replace the greenback as the world's reserve currency with a new system run by the International Monetary Fund (IMF).

There's a lesson here for anyone in Congress with the smarts to listen.

The goal, governor of the People's Bank of China Zhou Xiaochuan, wrote on the bank's website, is a reserve currency "that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies."

China has purchased buckets of US debt. The proposal may reflect Beijing's growing fears that inflation and uncoordinated efforts to right the floundering US economy will erode the value of their holdings. The proposal comes in the run-up to next week's meeting of the Group of 20 in London.

The irony may be that a bunch of Commies-turned-Capitalists have a better understanding of the world economy and the dangers of inflation than members of Congress.

Zhou proposed expanding the use of "special drawing rights," introduced by the IMF in 1969. Today, special drawing rights are based on 4 currencies: the US dollar, the yen, euro and British pound sterling. China proposes to expand the currencies to include all major economies, and to create a settlement system between SDRs and the world's other currencies in an effort to boost international trade.

Under China's proposal, countries would set aside a portion of their Special Drawing Rights to the IMF, which would manage the money collectively and would gradually replace existing reserve currencies, the Financial Times reports.

This might create a monetary system with all the moral authority of the United Nations and clout of the World Court. It's also unlikely to happen any time soon, if at all.

It's hard to imagine that the US would kick away the advantages of having the world's dominant currency for nothing but the promise of a kumbaya future. If nothing else, it wouldn't play in Peoria, and any politician who backed it would have hell to pay.
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