China loves the US dollar again as America roars back China’s central bank has radically revised its view of US economic and strategic power, predicting that the dollar will remain the world’s paramount reserve currency for decades to come.
By Ambrose Evans-Pritchard
7:11PM GMT 19 Feb 2013
telegraph.co.uk
Jin Zhongxia, head of the central bank’s research institute, said America’s energy revolution and export revival had shaken up the global landscape and would lead to a stronger dollar over time. “The dollar’s global dominance will continue,” he said.
Dr Jin said the world was moving to a “1+4” system, with the greenback serving as the anchor of global payments, supplemented by “four smaller reserve currencies” – the euro, sterling, yen and yuan.
“Compared with the euro area, the dollar zone has much greater resilience to shocks. The debt crisis in the euro area has demonstrated the structural weakness of this currency,” he wrote in a paper for the February bulletin of the Official Monetary and Financial Institutions Forum.
The comments suggest a profound shift in thinking about the US since the financial crisis five years ago, when premier Wen Jiabao questioned if Chinese holdings of US Treasuries were “safe”, and the central bank issued a paper calling for a “global currency” run by the International Monetary Fund.
The prevailing view in Beijing was that America had been toppled as a great power and was crippled by debt.
China has since begun to face its own problems as it grapples with the hangover of $14 trillion (£9 trillion) of credit growth since 2009 and surging wage costs.
The advantage is shifting back to the US. A so-called “manufacturing renaissance” is under way as US companies bring home plants to exploit cheap shale gas and lower transport costs.
A report by Citigroup said the explosive growth of US oil and gas output over the past year had exceeded the “wildest dreams of energy analysts”. The US has halved its oil imports since 2005 and is moving “rapidly towards self-sufficiency”, turning global geo-politics on its head.
Citigroup said lower energy imports and the revival of chemical industries would cut the US current account deficit by three quarters, eliminating a key cause of dollar weakness.
China’s central bank has clearly lost its earlier enthusiasm for the euro project, chastened by the debt crisis of the past three years. Dr Jin said EMU lacked the flexibility and fiscal unity needed to cope with crises, while the rigid fixed-exchange system was ill-adapted to shocks.
The informal dollar zone – a worldwide nexus – was more supple. Weaker states were forced to put their house in order before they reached acute crisis, or to devalue. “The dollar zone looks more loosely connected, but in reality it is more coherent than the euro area,” he said. |
