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Here it comes. The first salvo fired against the Dollar standard...

China calls for new reserve currency

By Jamil Anderlini in Beijing

Published: March 23 2009 12:16 | Last updated: March 24 2009 00:06

China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”

(normally I would snip this here, but FT made me get a subscription. I'll have twenty spam e-mails a day for months because of this; so screw 'em..here more..

Analysts said the proposal was an indication of Beijing’s fears that actions being taken to save the domestic US economy would have a negative impact on China.

“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC.

Would I be correct in saying that we are so far in debt to China that saying 'bugger off' is out of the question? That the multiple trillions of dollars we've printed out of thin air is largely backed by foreign capital? That we are, in fact, so 'owned' by the Chinese to such an extent that, with a word, they could push us over the edge to insolvency and collapse? The rest..

To replace the current system, Mr Zhou suggested expanding the role of special drawing rights, which were introduced by the IMF in 1969 to support the Bretton Woods fixed exchange rate regime but became less relevant once that collapsed in the 1970s.

Today, the value of SDRs is based on a basket of four currencies – the US dollar, yen, euro and sterling – and they are used largely as a unit of account by the IMF and some other international organisations.

China’s proposal would expand the basket of currencies forming the basis of SDR valuation to all major economies and set up a settlement system between SDRs and other currencies so they could be used in international trade and financial transactions.

Countries would entrust a portion of their SDR reserves to the IMF to manage collectively on their behalf and SDRs would gradually replace existing reserve currencies.

Mr Zhou said the proposal would require “extraordinary political vision and courage” and acknowledged a debt to John Maynard Keynes, who made a similar suggestion in the 1940s.

Keynesian economic. Figures, that totalitarian China would embrace Keynes. Bring on Centralized Planning while you're at it.

In addition to Ayn Rand's Atlas Shrugged, it's helpful to read Fredrich Hayek's The Road to Serdom. From a review at Amazon..

Hayek's thesis was that central economic planning will inevitably lead to governmental control of every facet of its citizen's life, and hence toward a totalitarian state. Hayek's other insightful observations: Nazism, Fascism and communism all have the same roots. In a totalitarian state, it is always the ruthless and the unsophisticated who ascend to the top. Extensive governmental control harms the society not just in delivering dismal economic results, but, more seriously, it produces a psychological change, an alteration in the character of the people.

China's desire to 'push us' over the edge is counterbalanced by their (relatively) new prosperity, their 'touch of capitalism'. Is that enough to prevent them from a mutually assured economic meltdown, if they do seek to topple the dollar, causing our collapse?

Remember, they were Communist long before they became..WalMartitized. Now, they are, what, exactly? Not like us, that's for sure.

If they do (inadvertently or otherwise) bring down the U.S. economy, then it's not so far they have to fall to return to their 'roots'. We've much farther, and would enjoy that slide much less.

We'll see. April 2, the G-20 Summit convenes; these opening salvos by China will certainly be under discussion.

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