Earlier this week, Russia issued a radical call for the eventual replacement of the dollar as an international reserve currency, and its replacement by a new, fiat currency to be created by a global regulator. The prospects for agreement on this at the G-20 summit in April, to put it politely, did not look promising.
But now another voice has been heard from: China. And their reaction has been surprising. With their vast holdings in dollar-denominated securities, you would think they would oppose anything that would weaken the dollar. But Reuters is now reporting:
China and other emerging nations back Russia’s call for a discussion on how to replace the dollar as the world’s primary reserve currency
And China’s ideas are slightly clearer than Russia’s vague proposal. The Chinese envisage:
the International Monetary Fund’s Special Drawing Rights (SDRs) being first assigned a role of a clearing currency on some transactions and then gradually becoming the main global reserve currency
The odds against this happening are still overwhelmingly long: the Russians suggest it would take 30 years to create this new currency. A lot will happen in the next 30 days, never mind 30 years. But the Chinese reaction suggests the idea can no longer be simply laughed off. It’s time for the Obama administration to wake up. The German publication Der Spiegel suggests that there is still a “residue of uncertainty” about what the U.S. will proposal. That’s putting it politely.
There’s not much uncertainty about what the Europeans want. A two-day EU meeting in Brussels repeated the now-familiar demands: a doubling of the IMF’s resources, no new stimulus packages, and a massive increase in supranational control of all financial institutions, so as to “[converge] international financial regulation to the highest level” – with “highest level” being a code word for a European straight-jacket.
No new stimulus packages is a good idea: the Obama administration should get behind it. The rest of the ideas are unfree and illiberal. But what is most disturbing right now is that the Russians, the Chinese, and the Europeans are making all the running. Who’s minding the store in Washington?