Foreign Affairs - Does Beijing Really Want to Challenge the Dollar?

This article in Foreign Affairs examines what China really wants from the international monetary system. It suggests that contrary to what many are saying, long standing Chinese policy has not really been focused on challenging the US dollar. It also suggests that Chinese support for the SDR is more about national prestige for China than a serious attempt to dethrone the US dollar. Below are a couple of excerpts from the article.

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In March 2009, a few months after the outbreak of the global financial crisis, the governor of China’s central bank, Zhou Xiaochuan, published an essay on the bank’s website. Zhou criticized the international monetary system for “the inherent deficiencies caused by using credit-based national currencies” and praised the Special Drawing Right (SDR), the synthetic currency created by the International Monetary Fund (IMF). The SDR “serves as the light in the tunnel for the reform of the international monetary system,” Zhou wrote.

Zhou’s call for a greater role for the SDR attracted attention around the world. Many observers viewed his comments as a sign of China’s readiness to challenge the U.S.-dominated international monetary order. Indeed, several years later, in 2015, China got its own currency, the renminbi (RMB), admitted to the SDR basket, which the year before had included only the dollar, the pound sterling, the yen, and the euro. Some Western analysts saw that measure, too, as a sign of China’s interest in challenging the international monetary system.

In fact, Zhou’s 2009 statement was not as revolutionary as it seemed.  . . . . . . . 

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