At Wednesday’s G20 summit, Russian President Dmitry Medvedev suggested creating “a new reserve currency” to replace the dollar. In a paper published March 23, Chinese central bank governor Zhou Xiaochuan also proposed a new reserve currency, one “disconnected from individual nations.”
China and Russia want a new global reserve currency. What would it look like? – By Christopher Beam – Slate Magazine
Seems to me like little more than excuse to hire some out-of-work accountants. Like the article goes on to say, countries who don’t want to hold dollars don’t need to- they can buy other currencies with which to hedge. The important thing is a floating currency exchange. Any attempt to create a de jure global reserve currency just means a bunch of bureaucrats who think they can arbitrate the relative value of currencies better than the markets can.
I’m no market fundamentalist, but when it comes to an ultra liquid asset class like currencies, I can’t see how even the smartest quants in the world can beat out the market. If they could, by God, they’d have already done it for themselves and struck it rich (some might say they have- and his name is George Soros). In other words, you’re virtually guaranteeing that the bureaucrats who would be in charge of such a currency’s makeup will be the underqualified to evaluate it, because those who are qualified to evaluate it will have significant motive to do so via the private markets.
I can understand China and Russia’s desire for a more stable reserve currency, given the recent upheaval, and the significant risk of inflation facing the USD. Here’s an alternative thought though: instead of worrying about which mattress in which to stuff those sovereign wealth funds of theirs, perhaps these countries should invest their excess cash into their own development.
China’s got a whole bunch of migrant workers who are now facing joblessness in the cities and no prospects back in their rural communities, and little social net to fall back on; not to mention a looming generational burden that puts our Social Security concerns to shame. Instead of financing sub-prime mortgages in the US in the vain hope that our drunken consumerism could fuel their growth forever, they could have been reinvesting their trade balance domestically. Then they wouldn’t have to worry so much about the value of the dollar, and possibly wouldn’t have to worry about quite as many hungry migrants marching toward Beijing come June.
The story’s the same for the oil producers, facing their own hangover from the bust in the oil bubble. The way I hear it, Russia’s doing pretty bad these days. Seems like it was just yesterday they were whooping Georgia’s fifth-rate militia and gleefully gobbling up South Ossetia. Now they’re gonna have to support all those new Russian citizens they printed up passports for- or let them starve I suppose. Either way, it seems a rather Pyrrhic victory to me.