China Flexes Its Muscles And Finds Support In A Bid To Dump The US Dollar As The World’s Main Reserve Currency

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April 12, 2009 6:57pm ETF BASIC NEWS NYSE:UDN

china1Finance officials from Beijing in Moscow on Thursday held a videoconference to discuss the creation of a “supra-national reserve currency,” the latest evidence of the support China is getting from developing countries as it seeks to replace the U.S. dollar as the world’s main reserve currency.

This controversial proposal – and the support that it’s getting – also underscores China’s continued emergence as a growing global force in both the financial and political arenas. That’s a trend that successful global investors won’t be able to ignore.

The recent torrent of criticism to swirl around the dollar began with remarks by Chinese Premier Wen Jiabao.  Speaking last month at a press conference leading up to the recent Group 20 meeting in London, Premier Wen voiced his concern about the value of China’s large holdings of U.S. Treasuries.

We have lent a huge amount of money to the United States,” he said. “Of course, we are concerned about the safety of our assets. To be honest, I am definitely a little bit worried. I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets.”

Of China’s $2 trillion in foreign currency holdings, about $1 trillion is invested in U.S. Treasuries and notes issued by other government affiliated agencies, such as Fannie Mae (FNM: 0.74 +0.06 +8.82%) and Freddie Mac (FRE: 0.77 +0.07 +10.00%).

They are worried about forever-rising deficits, which may devalue Treasuries by pushing interest rates higher,” JP Morgan & Co. (JPM: 32.75 +5.32 +19.39%) analyst Frank Gong told The Associated Press. “Inside China, there has been a lot of debate about whether they should continue to buy Treasuries.”

Earlier this year, the Congressional Budget Office (CBO) projected that the U.S. budget deficit would nearly triple from last year’s $455 billion – and would reach a staggering $1.2 trillion. And that was even before U.S. President Barack Obama unveiled his $787 billion in stimulus, bank-rescue and anti-foreclosure plans. And that massive projected shortfall also doesn’t include other fix-up initiatives that are sure to surface in the months ahead.

But rather than sit idly by and watch the value of its reserves be eroded by the U.S. government’s economic policies, China is trying to lay the foundation for future change.

Full Story:  http://www.dailymarkets.com/economy/2009/04/12/china-flexes-its-muscles-and-finds-support-in-a-bid-to-dump-the-us-dollar-as-the-world%e2%80%99s-main-reserve-currency/



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