China was the first to open the floor for discussion on the continued viability of the US dollar as the world’s reserve currency a couple of months ago. With good reason, since they are now the largest foreign holder of US debt instruments (that’s the paper money the Fed prints out of thin air). Just yesterday, however, on July 4th, Russia and India both reopened the discussion, each expressing doubt about the future stability of the US dollar , which is now the currency of the world’s largest debtor nation - a place where total debts are equivalent to about 10% of GDP.
Today, France chimed in to say with Russia that the current currency reserve system which is dominated by the US dollar is “out of date.” That sounds like a polite French way of saying that they’re also worried about the geopolitical implications of continuing to trade in such a heavily indebted dollar - a currency, the coming inflation of which even its own citizens are beginning to get concerned about.
“The dollar system or the system based on the dollar and euro have shown that they are flawed,” Russian President Dmitry Medvedev said, according to a Bloomberg report. I suspect that many US citizens don’t take seriously much of what Russia’s President says, since they have been schooled into thinking that anything Russian = out of date, silly or not worth paying attention to. But the fact of the matter is that Russia is just one of several countries now questioning the value of the US dollar for world trade. Recall Jim Rogers’ warning to the Russians about the US dollar months ago.
The G8 meets over July 8-10 in the Italian city of L’Aquila . Reuters India reports that China has been “pushing for a debate” on the world reserve currency at the meeting. Today, however, Chinese Vice Foreign Minister He Yafei was quick to take back these sentiments, apparently, stating that the US dollar will remain the world reserve currency for some time to come. All this means, though, is that China, like France, isn’t sure what the replacement should be.
Who can blame China, Russia and France? Would you keep lending money to someone who never pays you back and arguably doesn’t intend to?
It’s as if they’re saying, “if you want to destroy your own currency, go ahead, but if so it shouldn’t be exported to the rest of the world.” The rest of the world shouldn’t have to deal with more US financial problems, the main one now being the prospect of a kind of exported inflation .
You might think that that’s inevitable, since the US is the “world’s superpower” and since “anything the US does” the world has to put up with. I think that’s increasingly not becoming the case. The US still has the largest military, so they can effectively bully whoever they want into doing whatever they want, but it remains to be seen how wise and consistent the US government will be with regard to financial democracy. Sooner or later, you pay your debts, in one form or another.
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{ 2 comments… read them below or add one }
It’s always so amusing that all these countries want to suggest that everyone is _forced_ to use the dollar. China and Russia are not transparent countries at all. Who would want to use a country like that’s currency for reserve? Ultimately while the US has plenty of problems, we’re at least upfront about ours.
@Secure - China and Russia aren’t suggesting they use their own currencies. The problem China has raised, actually, is that of one country’s currency serving in both roles as a domestic currency (subject to the domestic economy’s problems) and also as the international reserve currency. If you read the history, you’ll see how much the U.S. under Nixon basically fleeced the rest of the world when it wanted its money back and Nixon took away the gold standard. That meant the U.S. could inflate all it wanted to and not really ever have to fully pay back its debts. Clearly, there’s a conflict of interest.