As China fears for its dollar reserves it offers new international currency

As China is getting more concerned about the profitability of the U.S. treasuries and other dollar denominated bonds its central bank is calling for the eventual introduction of the new international currency reserve to replace the dollar. Zhou Xiaochuan, governor of the People’s Bank of China, stated that a new currency reserve system controlled by the International Monetary Fund could prove more stable and economically viable.

Actually, as we already noticed China is very concerned about its huge foreign reserves denominated in dollars fearing that they could lose significant value in coming years. Currently China has the world’s largest foreign exchange reserves valued at nearly $2 trillion, with more than half of those holdings estimated to be made up of American securities.

China’s proposal was taken by some observers as a sign of its intent to assume a more influential role in the world though very few analysts expect dollar to be replaced as the world’s dominant foreign exchange reserve anytime soon. Zhou Xiaochuan said that the new system is necessary because the economy downturn showed the “inherent vulnerabilities and systemic risks in the existing international monetary system.”

Mr. Zhou said the goal of reforming the international monetary system was to “create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run.”