Friday, 26 June 2009

Chinese central bank keeps banging on about the US dollar

The Chinese central bank - The People's Bank of China (PBOC) - renewed its call on Friday for the creation of a super-sovereign reserve currency to reduce the dollar's global domination, which it said had worsened the financial crisis.

According to this Reuters report the PBOC, in its annual financial stability report, is now openly calling for an alternative to its dependence on the US dollar as the world's reserve currency
"To avoid intrinsic shortcomings in using a sovereign currency as a reserve currency, we need to create an international reserve currency that is divorced from sovereign states and can maintain a stable value over the long term," the report said.

"An international monetary system dominated by a single sovereign sovereign currency has intensified the concentration of risk and the spread of the crisis," the People's Bank of China said.

"When a national currency becomes the global price-setting currency for primary products, the trade settlement currency and the reserve currency, that national currency has great difficulty attending to both domestic monetary policy goals and the reserve currency needs of various countries.

"And the economic development model of debt-based consumption is most difficult to sustain," the report said.
However, one tries to spin those comments, this is a pretty straightforward rebuff by the leading global creditor of USA Inc. to the manner in which the folks in Washington are handling matters and strongly suggest that China is running out of patience with the status quo of the current global financial architecture.

This may be part of what keeps Mr. Obama awake at night when he thinks about the un-sustainability of US budget deficits. If the reader doesn't want to share in those sleepless nights it's better not to look at the following document from the Congressional Budget Office on the long term budgetary outlook for the US.

The graphs from this CBO document may well become mandatory screen saver images at the PBOC.

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