More Chinese big ideas

by | Apr 1, 2009 | Economics and development, London Summit

Earlier this week, I did a post on Chinese central bank governor Zhou Xiaochuan’s essay calling for the replacement of the dollar as the world’s reserve currency.  Today’s FT contains another instalment of big picture thinking from China on the global economy – this time from Yu Qiao, an economics professor at Tsingua University’s School of Public Policy and Management.

Like Zhou, Yu is explicit on Chinese worries about the potential erosion of the value of their rather large stash of US dollars – $1,200 billion of T-bills alone.  “Most of Mr Obama’s stimulus spending is devoted to social programmes rather than growth promotion,” he notes, “which may exacerbate America’s over-consumption problem and delay sustainable recovery”.

What’s more, he continues, that could in turn end up doing exactly what Tim Geither was worried about in the wake of Zhou’s essay: an erosion of the dollar’s role as reserve currency.  Here, interestingly, there’s what looks like a signal of preparedness to moderate the position set out in Zhou’s essay. Yu says explicitly that,

No other international monetary system offers a viable alternative. However, we can make the main reserve currency power more accountable by creating an instrument to help manage the global crisis.

Admittedly, Yu is an academic and not a member of the government.  But it’s very hard to imagine that a senior Chinese professor would directly contradict his government’s position, on such an acutely political issue, in a time of such severe risks, in the FT, the day before the G20 summit, without clearance.  At the same time, using this approach avoids losing face for Zhou – and may signal a willingness to talk, rather than a definite climbdown.

So what does Yu propose as an alternative way of safeguarding China’s assets, if not reform of the dollar’s reserve currency role?

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Bretton Woods 2: now we’re talking

by | Mar 25, 2009 | Economics and development, Global system, London Summit

Just before the Washington G20 summit in November last year, David and I co-wrote a paper entitled A Bretton Woods 2 Worth of the Name.  As the title implied, we were politely sceptical of some of the political rhetoric then flying around, comparing the G20’s discussions about bank capitalisation with the rather more far-reaching discussions held at the Mount Washington Hotel in 1944.

Now, though, things are getting more interesting.  Two days ago, Zhou Xiaochuan – the governor of China’s central bank – quietly published a paper on the People’s Bank of China website, entitled Reform the International Monetary System.  It opened like this:

The outbreak of the current crisis and its spillover in the world have confronted us with a long-existing but still unanswered question, i.e., what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF?

Later, Zhou continues that:

The desirable goal of reforming the international monetary system, therefore, is to create an international 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.

Now this line of thinking really does take us straight back to Bretton Woods – and in particular to Keynes’s proposal for a new global currency called the bancor, and a new global institution called the International Clearing Union (ICU). (more…)