China is again calling for a global 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," according to a new People’s Bank of China report.
Economists doubt the U.S. dollar will be replaced anytime soon, but China’s latest urging sent the dollar and U.S. stocks down. After Chinese Premier Wen Jiabao expressed concern about China’s large dollar-based holdings in March, Chinese investors dumped $4.4 billion of Treasuries.
Investors are wondering if the Chinese, who hold more U.S. Treasurys than anyone, will avoid the dollar and diversify into other currencies. That could cause problems for the Obama administration’s ballooning deficit and push up rates for mortgages and other loans.
The Chinese argue that reliance on a single country’s currency increases economic volatility. They want the International Monetary Fund to use more Special Drawing Rights, or SDRs, an artificial currency based on a basket of major currencies.
Turning SDRs into a global currency is a long-term possibility, said John Lipsky, a top IMF official.
“The idea of a global currency determined by a multilateral organization is not new," Lipsky said at an earlier press conference.
“It’s a serious proposal and I don't think even the proponents think of it as a short-term issue, but rather a longer-term issue that merits serious study and consideration,” he said.
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