China Calls for Replacing the Dollar

Niall Ferguson has a lot to say about the history of money.  Here's a hint of what might turn out to be another important development in monetary history: "China officials call for displacing dollar, in time":

The financial crisis has laid bare defects in the dollar-led global economy and the world should look to displace the U.S. currency, even if that will take many years, Chinese officials said in comments published on Monday. 

The push for fundamental, if gradual, reform of the international financial system comes just before the Group of Eight summit in Italy, where China's willingness to question the dollar's role could fuel debate. 

The Special Drawing Right (SDR), a unit of account used by the International Monetary Fund, presents a viable alternative to the dollar as a global reserve currency, said Li Ruogu, chairman of the Export-Import Bank of China, a major state-run bank. 

"It is a feasible plan to reform the present SDR and make it into a real settlement currency, a universally accepted 'currency basket' that would replace the dollar at the heart of the monetary system," Li was cited as saying in Financial News, a newspaper published by the central bank. 

The People's Bank of China made waves in March when it first suggested that the SDR, whose exchange rate is determined by a mixture of dollars, euros, sterling and yen, was better suited than any single currency to be a yardstick for global trade and a reliable store of value. 

"The financial crisis caused the global economy to suffer heavy losses and it also let us clearly see how unreasonable the current international monetary system is," Li, a former central bank vice governor, said.

Question: How would it affect the United States if the dollar were replaced by IMF special drawing rights as an international reserve currency?  What are some of the ways the US might be harmed, or benefited?

Comments

[Michelle]

This made me think of a recent article in Time which states that "Officials from Russia, China and Brazil have said in recent weeks that they would invest in bonds issued by the International Monetary Fund to diversify their dollar-heavy currency reserves." To read more: http://www.time.com/time/business/article/0,8599,1904913,00.html

And another article hinting at the benefits of BIC (Brazil, India, and China) in the global economy: http://www.time.com/time/magazine/article/0,9171,1908436,00.html

Also, for anyone who is interested in the economic and mythological history of gold, feel free to check out this article in National Geographic: http://ngm.nationalgeographic.com/2009/01/gold/larmer-text/2

[Rex McHail]

I heard a very interesting report on NPR this morning about how for years the United States has been a primary intermediary between Australia and China both economically and militarily. Now, China is beginning to regard America as less of a superpower with decreasing global military influence, and are themselves predicting to pass the United States as far as military influence and overall global control are concerned by 2035 or 2040. It is a very interesting thought, especially because China is heavily investing in U.S. debt, that it is possible in the future for America to no longer be the most influential global superpower.