Sjeltur

Conformation what we already knew: the Chinese want to abandon the US dollar as the world reserve currency. Zhou Xiaochuan, governor of the People’s Bank of China, said a new currency reserve system controlled by the International Monetary Fund (IMF) could prove more stable and economically viable.

And: “The global economic crisis has revealed the inherent vulnerabilities and systemic risks in the existing international monetary system.” The Chinese probably don’t want to abandon the dollar any time soon, but it’s clear they are worried about the stability of the US currency. Earlier this month the Chinese prime minister said he was concerned about the huge economic stimulus plans that increases the already high deficit of the US, and the expected depreciation of the dollar.

China is sitting on a mountain of dollars, at least $1.95 trillion, perhaps even more. The Chinese are not only expressing their concerns, but take action as well to protect themselves against a fall of the dollar. China is very active to buy and invest abroad, this way lowering the amount of dollars they have. And China already started programs to use their own currency, instead of the dollar.

If the explosive money creation by the Fed won’t kill the dollar, then the Chinese probably will. They hold the key to what’s going to happen. They weigh the advantages and the disadvantages of dropping the dollar, and at some point in the future the advantages will be bigger than the disadvantages. It’s not difficult to predict what will happen next…