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WORLD Bank President Robert Zoellick has warned that the United States should not "take for granted" the US dollar's role as pre-eminent global reserve currency.
"The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency, Mr Zoellick said, in excerpts of a speech to be delivered later today.
"Looking forward, there will increasingly be other options to the dollar," Mr Zoellick said in the address to be given at Washington's John's Hopkins University.
Originally posted by WyrdeOne
I'm betting on the Chinese Yuan.
It's going to be interesting to see what happens.
t will be four years before the IMF can undergo the "structural adjustment" it has preached to developing countries. But China knows better than everyone else that there is always a way around bureaucratic rules. If you cannot become a shareholder, then be a creditor. So when the IMF decided on July 1 to issue $150 billion in SDR bonds, the BRIC nations bought in, with Russia and Brazil purchasing $10 billion each, and China taking the lion's share, an additional $50 billion.
This is the first IMF-issued bond that is sensitive to the dollar. Beijing's purchase of IMF bonds represents a shift by openly reducing dollar assets. The BRICs' underwriting of this SDR bond issue is a clear step toward creating a global reserve currency. By buying one-third of the issue, China becomes a creditor of the IMF, and gets more say in the institution.
China has reasons for wanting leverage. The IMF is often charged with being the tool of US policy; China may be about to change the global financial architecture by financing the IMF into compliance on issues that irk Beijing. The IMF has continuously called on China to adjust its currency upward. The IMF's recent Article No 4 Consultation Report accuses China of undervaluing its currency and calls for the revaluation of the yuan. China refuses.
Chinese economists feel this crisis gives China room for further financial reform. Within this context, China's yuan will rise and become the international currency. At least that is what many in Beijing think; others are skeptical and feel the dollar can't be replaced in the short-term as the global reserve currency. They warn that promoting such an idea is detrimental to China's relations with the US. Nonetheless, China's economic leaders agree that the SDR should one day replace the dollar as global reserve currency, even though the debate over when this occurs continues.
China has given the developing world a new response profile. Rather than argue with the IMF policy, make the IMF your debtor. The IMF has little choice but to listen. At any rate, the United States and Europe cannot afford to purchase the IMF's new SDR-issued bonds. China can. Bretton Woods established the IMF as the world's bank of reserve. It looks like China is positioning to become the bank of reserve to the IMF.