China proposed a currency to replace dollar globaliza

Monday, 08 August 2011 09:19

La Jornada
Sunday August 7, 2011, p. 27

Beijing, August 6. The downgrade by Standard and Poor's (S & P) to the U.S. debt on Friday sparked strong criticism of Washington by China and deepened the alarm of investors who spread this week about the weakness of the economy on both sides of the Atlantic.

China condemned the myopic political struggles of the United States for their debt problems and said the world needs a new global reserve currency. China, the largest holder of U.S. debt (with 1.6 billion dollars invested in U.S. treasury bonds), has every right to demand that the United States to address their structural problems of debt and ensure the safety of dollar assets in China, said official news agency Xinhua in an editorial, which also criticized the huge bloated military expenditures and the cost of social programs, and said that the time constant debt to the country over.

The decision of the most influential rating agency to unseat the first time in its history the United States the highest credit rating and designation as the most solvent for investment, deepening investor fears of an impending recession in the U.S. economy world (when they still could not recover from two years ago), a situation aggravated by the debt crisis in the eurozone, which threatens to drag two of its largest economies: Italy and Spain, the third and fourth representing 30 percent of gross domestic product (GDP) of the currency bloc.

The downgrade from one level to the credit rating of the United States from AAA to AA + occurs also in the same week in which stock markets around the world had their worst decline in more than two years, after which it disappeared 2.5 billion dollars in global markets (comparable to twice the total economy of Mexico).

International supervision should be established on the subject of etadunidense dollars, plus a new, stable and secure world reserve currency as an option to avoid a disaster caused by a single country, Xinhua raised, which generally reflects the policy of the government in Beijing.

Chinese economists say that the reduction of the highest credit rating in the United States by the most influential agency represents a significant risk to financial markets and they expect Beijing to accelerate the diversification of its reserves.

British Finance Minister, Vince Cable, China supported the call for the need to establish another global reserve currency, but said it could not be the overnight and that by the time the U.S. dollar remains key.

In doubt superpower status

In an article published by Financial Times, Mohamed El-Erian, head of the investment company Pacific Investment Management Co (Pimco, one of the most important worldwide, manages assets of $ 1.2 billion, which is comparable to the product Mexico's gross domestic), states that a downgrade is ambiguous and audible signal that economic strength and the country's global position is eroding.

Although the impact by cutting the debt rating could be modest in the financial markets on Monday as the decision was expected, the change could have a major long-term effect for the U.S. position in the world, the dollar's status and the global financial system, said the investor, who joins the voices questioning the role of Washington's global hegemony.

United States is in a delicate position. Since the collapse of the Soviet Union, the country has been the de facto superpower in the world, which offered advice on all issues. However, after only arise temporarily from a global financial crisis that many see him as responsible, after the failure involved the reduction of Friday, Washington is now experiencing a serious crisis of credibility, "said Gil Bates for his part, director of International Research Institute on Peace Stockholm.

Meanwhile, China, the second largest economy, breathing hard, despite the crisis, registering a strong growth while their businesses are launched to rescue the sinking business in the West.

Now there is a strong difference with the post-Cold War era, when nobody wanted to hear about the planned economy and the Washington consensus in favor of democracy and free market seemed the only option. A U.S. policymakers that they have no urgent need to regain the initiative with better governance and economic policies more coherent, said El Erian.

Obama calls for unity in order to put public finances

In an unusual conference on Saturday, a day after its decision, Standard and Poor's said the main problem that led to degrade the note of the U.S. debt is political, the inability of Congress to find agreement on budgetary issues.

Political risks outweigh the budgetary part of the equation, said the director of evaluations of S & P, David Beers.

The agency explained that the U.S. government, by focusing on the error of figures which he has committed, he forgot that there were other factors in the decision to lower the note. The budget aspect is obviously an important pillar of our analysis, but is only one of the five pillars, said the chairman of the evaluation of S & P, John Chambers.

The other four, he said, are the political configuration, the strength of the economy and its growth prospects, the position of the economy versus the rest of the world, and monetary policy.

After the downgrade by S & P, in his message on Saturday the U.S. President, Barack Obama urged lawmakers to put aside politics after a fierce battle over the debt ceiling, saying they should work together to sort out the finances of the United States and focus on stimulating the economy. In the afternoon, the White House asked to put aside ideological differences to improve the economic situation. We must improve, to make clear the will of our nation's ability and commitment to work together to address the fiscal and economic challenges said presidential spokesman Jay Carney said in a statement.

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