Sjeltur

The executive vice president of the Bank of China, a commercial bank run by the government, says that the decision of the US Federal Reserve to create billions of new dollars would make the US currency irrelevant to global trade and finance.

Zhu Min told CNBC that, while the dollar remains the global currency, it can’t support the world economy by itself. “Either we ask the US to take the whole responsibility of the world economy, with the dollar as global legal tender, or else we need something else as an anchor”, Zhu says.

He repeated earlier remarks made by the Chinese to use the International Monetary Fund (IMF) to form a new, stable currency. Starting point could be the Special Drawing Rights of the IMF, a synthetic currency basket containing the US dollar, euro, yen, and pound. The IMF’s Special Drawing Rights could at least balance the dollar, Zhu says. Zhu also says that the Chinese yuan, known domestically as the renminbi, has a role in global currency matters in the future. Zhu: “We are seeing a new player in the international arena — that’s the renminbi. It will take a while before the renminbi will be convertible, but an interesting thing is happening.” The Chinese currency’s circulation is growing, he points out. “More and more, it will be used in trade settlements.”

This statement shows the path the Chinese want to take, replace the US dollar as the world reserve currency with SDRs. To make SDRs more stable, the yuan should be part of the basket that makes up SDRs, perhaps with the US dollar entirely removed. China doesn’t say it yet, but given the fact the Chinese are hoarding gold, they probably see SDRs as a temporary solution, just to prevent a dollar collapse and a chaotic abandonment of the dollar. In the long run they want a new, gold-backed, world reserve currency.