More Chinese big ideas
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?