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China calls to replace the dollar...but with what?

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China's central bank is suggesting that the US dollar be replaced as the international reserve currency. Is this a viable possibility? What would this mean for the U.S.A.? What currency would be considered for a new world economic order?

Zhou Xiaochuan, Governor of the People's Bank of China states in an essay posted earlier this week that "The outbreak of the [financial] crisis and its spillover to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system." (Taiwan News Online, March 25, 2009)

The Governor's comments come just prior to the G20 summit set for April 2 in London. System-wide financial reform is on the agenda as world leaders and international organizations will meet to discuss revamping the backbone of the financial institutions of the world.

According to an Associated Press article, China is not resting easy with a "global financial system dominated by the dollar and Western governments." (AP, March 24, 2009) Governor Xiaochuan "recommended creating a currency made up [of] a basket of global currencies and controlled by the International Monetary Fund and said it would help 'to achieve the objective of safeguarding global economic and financial stability.'"

"Premier Wen Jiabao publicly appealed to Washington this month to avoid any response to the crisis that might weaken the dollar and the value of Beijing's estimated $1 trillion in Treasuries and other U. S. Government debt." (ibid.) America, it seems, may have reduced its hold as the world superpower by being unable to maintain leverage gained by being the reserve currency of the world. Left holding the bag are the creditors, China being the largest, faced with very tough economic decisions.

As pressure mounts from the financial crisis and now with China's suggestion of a global currency, Yi Xianrong, a researcher with the Institute of Economics and Finances at the Chinese Academy of Social Sciences, advances the idea "that the U.S. and Europe should give up their traditional privileges of appointing the heads of the World Bank and the IMF [International Monetary Fund]." (ibid.) Will this rising tension between the U.S. and China result in a radical change to the world monetary system?

The proposed new reserve currency, already used for nation-to-nation borrowing since 1969, is an international reserve asset known as SDR's (Special Drawing Rights). SDR's "are based on the value of four currencies – the dollar, euro, yen and British pound."

Other countries besides China have reason to support the notion of a new international currency as well. "They've noticed that as long as the dollar is the major safe haven, the United States can borrow hundreds of billions from the rest of the world at low interest rates." Low interest rates are "a big advantage for the U.S". (NPR, March 25, 2009) Is the world growing weary of this American advantage?

Michael Pettis, finance professor at Peking University's Guanghua School of Management, asserts that "the 16 European nations that use the euro have faced "huge difficulties" in managing monetary policy even though their economies are similar." (AP, March 24, 2009) Does this mean that a world currency is not possible?

Kenneth Rogoff, former chief economist at the IMF, postulates that "one option would be to create a currency that countries could invest in as an alternative to the dollar if they so choose." (AP, March 24, 2009) Could this "alternative to the dollar" be the Euro, with Europe having a head start working through the "difficulties" as it were, and stepping forward to fill the current void of sound financial leadership? What would this mean in light of Bible prophecy?

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