Monday, March 23, 2009

A quiet and polite neutron bomb

China on Monday proposed a sweeping overhaul of the global monetary system, outlining how the dollar could eventually be replaced as the world's main reserve currency by the IMF's Special Drawing Right.

The SDR is an international reserve asset created by the International Monetary Fund in 1969 that has the potential to act as a super-sovereign reserve currency, Zhou Xiaochuan, governor of the People's Bank of China, said in remarks published on the central bank's Web site.

"The role of the SDR has not been put into full play due to limitations on its allocation and the scope of its uses. However, it serves as the light in the tunnel for the reform of the international monetary system," he said.

Zhou diplomatically did not refer explicitly to the dollar.
Kind of a big deal. I know a number of economists have said that the actual benefits the US accrues by being the default reserve currency are minimal, but I'm unpersuaded. (Certainly, if the US had to repay its loans in Euros I think they'd be following a different fiscal course right about now...)

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