CitizenshipFinance.com

The world was shocked by the China’s proposal to replace the US dollar as the dominant international reserve currency with a new global reserve currency governed by International Monetary Fund.

This was expressed by People’s Bank of China’s governor Zhou Xiaochuan, In his open essay in the China’s central bank website he argued that this proposal would not only separate reserve currency from few individual nations but also eliminate the inheritance of the risks in such currencies and in the long run, will become more stable than that of any nation.

Many analysts think that this proposition was a mere indication of China’s concern over the weakening dollar and the different actions made by the US on their domestic economy would have a great impact on the China’s economy.

By far, China is the biggest investor in the US economy which, for the same reason, looms a number of criticisms that the open essay was more concerned at reducing, if not eliminating, the potential inflationary threats of dollar than having a stable world standard currency.

But in this attempt, China might lose the value of their assets by 30% percent according to experts at Economic Policy Institute as the China’s yuan may rise in value in relation with dollar’s current exchange rate. China holds a big chunk of shares in US market amounting to $2,000 billion.

Special drawing rights are a currency basket of four major international currencies such as US dollars, the European Union’s euro, the Japanese yen, and the UK pound sterling. Prior to the euro, which was introduced in 1999, the French francs and the Deutsche Mark were included in the currency basket. This is primarily the unit of account used by IMF and other international organizations.

Tags: China, Dollar