March 25/09. US
Treasury Secretary Tim Geithner confessed that he had not read the plans
by China's central bank governor for a "super-sovereign reserve
currency" run by the International Monetary Fund, but nevertheless let
slip that Washington was "open" to the idea. Whoops.
This is how matters
quickly escalate in geo-finance. China's suggestion – backed by Russia,
Brazil, and India, and clearly aimed at breaking US dollar hegemony – is
making its way onto the agenda of the G20 Summit next week. 'Dollar-dämmerung'
no longer looks so far-fetched.
It comes days after
premier Wen Jiabow demanded US action to safeguard the value of China's
holdings of US bonds - $740bn of US Treasuries and a further $600bn or
so of other debt. "We have lent huge amounts of money to the US. Of
course we are concerned about the safety of our assets," he said.
Party seems to fear that the Federal Reserve is orchestrating a
beggar-thy-neighbor devaluation - and a disguised default on America's
foreign debt - by resorting to the nuclear option of printing money to
buy US Treasury bonds.
China's proposal is
to activate the IMF's power to issue Special Drawing Rights (SDRs). The
IMF would be groomed as de facto central bank for the planet. The SDRs
would gradually become an "accepted means of payment". Call it the 'globo'.
The pitfalls of a
world central bank are obvious. It is hard enough for the European
Central Bank to run policy for 16 states in a region with a shared
history, and shared EU institutions (Commission, Court of Justice,
competition police, etc). The politics of global monetary management
would be poisonous.
In theory, this
world reserve bank would be above politics. There is no world
parliament, no world government. Who would control a super-IMF?
If the G20 opens the
door wide enough next week, a world currency may yet come into being.
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