China suggest International Monetary Fund

China suggest International Monetary Fund

03-25-2009 15:34

China wants to establish a super national currency, which targets on the exchange reserves worldwide. On one hand this implicates China’s vision that the dollar will suffer from devaluation on the long-tem, while on the other hand it makes clear that China will be important in the formation of the new financial constitution, which will operate worldwide.

Protection against dollar’s fluctuations

The People’s Bank of China Governor Zhou Xiaochuan insisted on formation of the ‘super-sovereign reserve currency’, before the US dollar showed the worst fall ever versus the euro last week. The Chinese monetary authorities believe that an International Monetary Fund should be created in order to prevent the dollar’s instability to affect the world’s foreign reserves negatively.

Printing dollars damages currency reserves

According to analysts China targets on a more prominent position at the next G-20 meeting. The US tries to boost the US economy by printing dollars, which results in damaging the currency reserves of many countries. China suffers the most from US’ dollar printing since it owns most of the US Treasury notes. For that reason a restructure of the global financial system would especially benefit China as it could protect the domestic interest rates, which could be established by creating an International Monetary Fund.

China’s central bank signed currency swap

The central bank of China agreed on a currency swap with Indonesia, which joined Malaysia, Hong Kong, Belarus and South Korea. A currency swap enables foreign trade between the member countries without intervention of the US dollar as the intermediate currency.