Zhu Min, executive vice president of the Bank of China, a government-run commercial bank, says that the Federal Reserve’s decision to print billions and billions in new dollars to head off the financial crisis would make the greenback irrelevant to global finance and trade.
That will happen unless there is another global currency to balance it, he told CNBC.
While the dollar remains a global currency, it can’t support the world economy by itself, Zhu says.
“Either we ask the U.S. to take the whole responsibility of the world economy, with the dollar as global legal tender, or else we need something else as an anchor,” Zhu says.
He reiterated a call for the use of an International Monetary Fund (IMF) instrument to offset the dollar’s influence on international reserves and trade.
Known as special drawing rights (SDR), the practice dates back to the late 1960s, when the IMF used the vehicle to supply reserve assets to expand trade when gold and the dollar were in short supply.
“The IMF’s special drawing rights could at least balance the dollar,” Zhu says.
Zhu says, however, that the Chinese yuan, known domestically as the renminbi, has a role in global currency matters in the future.
“But we are seeing a new player in the international arena — that's the renminbi. It will take a while before the renminbi will be convertible, but an interesting thing is happening.”
The Chinese currency’s circulation is growing, he points out. “More and more, it will be used in trade settlements.”
Dennis Gartman pointed out recently that Nobel laureate Robert Mundell strongly supports the idea of using the SDR as a reserve currency. Mundell believes that the renminbi should be part of the basket making up the SDR.
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