At a time when the U.S. and other traditional economic powers are weakening, China is flexing its muscles, signaling it will seek a much more assertive role in shaping the future of the world financial order.If a "new global reserve" currency were to replace the dollar, economies that have "dollarized" their local markets would seek to shift from the dollar a stronger unit of exchange. For the Chinese, behind this notion of a "super currency" is the yuan. The international system's premiere power will establish its currency as the reigning unit of international trade and finance. Today that role is played by the dollar. Before World War I, Britain's pound-sterling did the trick. Serious analysts of international monetary relations know the stakes involved in this debate. And the Chinese certainly know that when the renminbi replaces the dollar as the globe's sovereign currency, they'll have buried American hegemony.
The apparent shift in Beijing's approach is likely to be displayed at the Group of 20 nations' summit today in London, as China presses for changes in a global finance system long dominated by the U.S. and Western Europe.
Leading up to the gathering of the heads of 20 major developed and emerging economies, Chinese leaders have publicly criticized America's economic system, raised concerns about the safety of China's massive holdings of U.S. debt and, most recently, proposed the creation of a new international currency to replace the dollar.
At the same time, China is snapping up foreign oil fields and mines, ensuring that its raw materials cupboard will be well-stocked when the economy rebounds. This year China has signed deals with Iran, Russia and Venezuela for oil and gas deals worth tens of billions of dollars, and has made moves for stakes or outright purchases of at least seven mining companies.
Chinese companies are also looking to buy high-profile Western brands on the cheap, while recruiting foreign talent to upgrade China's technology. China's Geely Automobile Holdings Ltd. has reportedly talked with Ford Motor Co. about purchasing its distressed Volvo unit. And analysts on both sides of the Pacific have floated the prospect of a Chinese automaker acquiring General Motors Corp.'s venerable Buick line, if not the entire company, something once considered unthinkable.
China sees the global downturn as a once-in-a-century opportunity -- and it has the wherewithal to seize the moment. Although Chinese leaders too are struggling with shrinking trade and rising joblessness, their economy is still growing faster than those of other major nations. Chinese banks are more stable. And the Beijing government is sitting on the largest stockpile of foreign reserves in the world, some $2 trillion.
"They have fairly clear objectives of where they see their place in the new world order," said Oded Shenkar, a management professor at Ohio State University and author of "The Chinese Century." "They see it's time to position themselves more assertively" ....
In recent weeks Chinese leaders also have taken aim at the dollar. Premier Wen Jiabao expressed concerns last month about the stability of some $1 trillion of U.S. government bonds in Chinese hands. President Obama swiftly responded by declaring that foreign investors can have "absolute confidence" in Treasury bonds.
Beijing worries about the possibility of a falling dollar or serious inflation eroding the value of its investments, as Washington borrows record sums to dig itself out of the recession. Last week the head of China's central bank, Zhou Xiaochuan, raised the idea of creating a new global reserve currency to replace the dominant dollar -- a kind of super-currency made up of a basket of national currencies and controlled by the IMF.
Experts agree it would take years, if not decades, to design and manage a truly global reserve currency that could supplant the greenback. Many Chinese have urged Beijing to stop plowing so much of the foreign reserves into risky dollar assets and instead deploy the funds to acquire the technology and natural resources needed to fuel the nation's economy.
See also, Dennis Wilder, "How a 'G-2' Would Hurt," on the debate over a U.S.-China strategic condominium, and the fallout this alliance migh have for international relations (via Memeorandum).