When China's central banker, Zhou Xiaochuan, proposed to create 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', he was making an all-too-obvious reference to displacing the US dollar.
The idea was summarily dismissed by US President Barack Obama, who insisted that Group of 20 nations should, instead, throw more money at stimulus packages.
Debate erupted among China observers and global economists alike. Some said that Dr Zhou's statements were his own and did not represent Beijing's view. This is misleading: under China's current administration of absolute political correctness, there are no 'independent' viewpoints. Dr Zhou's role, as central banker, was to float the idea publicly.
Mr Obama should take the idea seriously. Stimulus packages alone will not solve the global financial systemic disorder which, to a great extent, has arisen amid overspending in what is effectively a global credit pyramid scheme.
So why has the global currency idea emerged at this time? Some speculate that it represents China's emerging new-found confidence in its own system amid the global financial crisis and collapse of the Bretton Woods system.
While such considerations may be factors in China's assessment of the situation, Dr Zhou's views probably reflect the leadership's more basic pragmatism and self-serving, short-term interests. With US$2 trillion in foreign exchange reserves, China is the largest holder of US dollar-denominated financial assets. Obviously its leadership should be concerned at this time.
