Reuters reports that China backs talks on dollar's reserve status.
(emphasis mine) [my comment]
China backs talks on dollar as reserve-Russian source
Thu Mar 19, 2009 11:24am EDT
By Gleb Bryanski
MOSCOW, March 19 (Reuters) - China and other emerging nations back Russia's call for a discussion on how to replace the dollar as the world's primary reserve currency, a senior Russian government source said on Thursday. Russia has proposed the creation of a new reserve currency, to be issued by international financial institutions, among other measures in the text of its proposals to the April G20 summit published last Monday.
Calls for a rethink of the dollar's status as world's sole benchmark currency come amid concerns about its long-term value as the U.S. Federal Reserve moved to pump more than a trillion dollars of new cash into the ailing economy late Wednesday.
Russia met representatives of China, India and Brazil ahead of the G20 finance ministers meeting last week, as the big emerging powers seek to up their influence on decision making globally. Their first ever joint communique did not mention a new currency [Russia, China, India and Brazil are issuing their own communiqué? That is definitely not good for the US or the dollar] but the source said the issue was discussed.
"They (China) did not formally put forward their position for the G20 summit but unofficially they had distributed their paper regarding the same ideas (the need for the new currency)," [China is unofficially proposing ditching the dollar. Now that is scary!] the source told Reuters, speaking on condition of anonymity.
The source said the Chinese paper envisaged the International Monetary Fund's Special Drawing Rights (SDRs) being first assigned a role of a clearing currency on some transactions and then gradually becoming the main global reserve currency. [Looks like a lot of thought is being put into these "discussion" on how to replace the dollar] "They said that the role of reserve currency should be given to SDR," the source said.
A U.N. panel of experts is also looking at using expanded SDRs, originally created by the International Monetary Fund in 1969, but now used mainly as an accounting unit within similar organisations as a new reserve currency instead of the dollar.
Currency specialist Avinash Persaud, a member of the U.N. panel, told a Reuters Funds Summit on Wednesday that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.
The SDR and the old Ecu are essentially combinations of currencies, weighted to a constituent's economic clout, which can be valued against other currencies and against those inside the basket.
The Russian source said Moscow was aware that the emergence of the new global currency would not happen overnight and said its goal was to initiate a discussion about it at the G20 summit in London on April 2.
The source said that India did not object to the discussion but was not prepared to take the lead. The source said South Korea and South Africa backed the idea, while developed nations were not "allergic" to it. [Yikes!]
"We are not waiting for everyone to say: 'How beautifully it has all been formulated, let's subscribe to it'," [Agreed] the source said. "The main idea is to start a discussion about it."
Russia holds about half of its reserves, the world's third-largest, in dollars, with the rest in euros and pounds. Prime Minister Vladimir Putin has called on reserve currency issuers to show more financial discipline. [Russia is probably not very happy with the fed's 15-fold expansion of the US money supply]
Finance Minister Alexei Kudrin told reporters on the sidelines of the G20 finance ministers meeting that it would take up to 30 years to create a new super-currency, suggesting there was no unity in Russia on the issue.
My reaction: I have said it before: there is absolutely no way the dollar will survive as the world's reserve currency.
1) Nations around the world are concerned about the dollar as the fed pumps trillions into the ailing US economy.
2) Many nations back discussion on how to replace the dollar as the world's primary reserve currency:
A) Russia has proposed discussions for the creation of a new reserve currency
B) China unofficially distributed their own paper envisioning a new global reserve currency.
C) India did not object to the discussion
D) South Korea and South Africa backed the idea
E) Developed nations were not "allergic" to
3) Representatives of Russia, China, India and Brazil meet last week and issued their first ever joint communiqué. Global politics seem to be moving towards a post-US world...
Conclusion: The world is moving away from the dollar at an accelerating pace. Be warned: the decoupling from the dollar will not be easy or painless. However, leaving the dollar is an unavoidable process which must take place before the global economy can recover.