End of dollar hegemony?

The Telegraph reports that the US is open to giving support to Chinese proposals for a new World currency not under the control of a single sovereign nation. They have more here, too.

Yesterday Zhou Xiaochuan of the Chinese Central bank published proposals for an new international reserve currency, that is able to remain stable over the long run (maintain value). This comes hot on the heels of similar proposals for “paper gold” from the Russians.

Recently the US Federal Reserve began undertaking Quantitive Easing, which involves increasing the supply of existing money and using that new money to purchase assets, typically US Treasuries. The Chinese hold significant amounts of US Bonds ($740bn of US Treasuries and a further $600bn or so of other debt, according to the second Telegraph report) as part of their foreign reserves, and have been diversifying into other assets in recent months as concerns began to grow over American ability to repay.

According to the Telegraph the dollar traded sharply lower against the Euro on the news that Tim Geithner, the US Treasury Secretary, stated that the USA were willing to countence such moves. Respected investors such as Jim Rogers, Marc Faber and Peter Schiff have been predicting a serious dollar decline for some time.

The White House swiftly backed away from this position, but the seeds of doubt have been sown.

Update: The Moscow Times have the detail on the Russian proposal.
Russian news spin, states China backs Russian call.
IMF open to chinese proposals.
Dollar’s days maybe numbered – Moneyweek
Dollar crisis in the making- Asia Times
UN Panel – Ditch the dollarFrom the Telegraph article

The dollar plunged instantly against the euro, yen, and sterling as the comments flashed across trading screens. David Bloom, currency chief at HSBC, said the apparent policy shift amounts to an earthquake in geo-finance.
“The mere fact that the US Treasury Secretary is even entertaining thoughts that the dollar may cease being the anchor of the global monetary system has caused consternation,” he said.

Mr Geithner later qualified his remarks, insisting that the dollar would remain the “world’s dominant reserve currency … for a long period of time” but the seeds of doubt have been sown.

The markets appear baffled by the confused statements emanating from Washington. President Barack Obama told a new conference hours earlier that there was no threat to the reserve status of the dollar. “I don’t believe that there is a need for a global currency. The reason the dollar is strong right now is because investors consider the United States the strongest economy in the world with the most stable political system in the world,” he said.

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