Give China a Reserve Currency



As former U.S. Secretary of State Colin Powell famously advised, China favors "overwhelming force" in its campaigns, military or otherwise. Most recently, in a direct challenge to the global economic architecture established by the U.S. and its allies after World War II, Beijing has pledged nearly $200 billion to various new lending institutions and funds -- to bolster trade with Europe, establish a footprint in the Indian Ocean, build infrastructure across Asia and generally increase the mainland's influence worldwide.
A new push to establish the renminbi as one of the world's reserve currencies adds to this campaign. The move would confer prestige, take America down a peg and attract more investment. Viewed that way, Washington should fear the yuan joining the ranks of the dollar, euro, yen and British pound, right? Wrong. Increased use of the yuan internationally will force China to restructure more radically than its leaders may realize. It also could stabilize the country's rickety financial system, to the benefit the U.S. and the rest of the globe.
While People's Bank of China Governor Zhou Xiaochuan hasn't said so publicly, I'll bet that his push for the International Monetary Fund to add the yuan to its Special Drawing Rights system is a backdoor gambit to promote reform at home, more than a geopolitical power grab. Zhou is an unabashed liberalizer, a trusted disciple of former Premier Zhu Rongji, the man who in the 1990s took on state-owned companies and tossed more than 40 million of their employees out of work. Amid speculation Zhou, 67, may soon be replaced, he could be trying to cement the reform process his mentor began.
for details : wpesek@bloomberg.net

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