There has been a lot of talk recently about China pushing for dethroning of the U.S. dollar as the world’s dominant currency. Topping the discussion, China’s central bank governor Zhou Xiaochuan called for the International Monetary Fund’s Special Drawing Rights to eventually replace the dollar as omnipresent global reserve currency. Seen from this background, today’s statement by senior official Guan Tao from China’s State Administration of Foreign Exchange (SAFE) seems all the more surprising. Mr. Tao said in a statement that instead of the global financial crisis and the constant talk about currency reserve diversification the U.S. dollar will retain its dominant international role. SAFE manages China’s $1.95 trillion currency reserves, giving Mr. Tao’s statement–although declared private–significant weight in the ongoing discussion about the future role of the dollar as international currency. Mr. Tao sees severe lacks in reserve alternatives to the dollar. Although the share of gold among China’s currency reserves has strongly increased over the last years, the precious metal is of little practical value and not in suited to replace the dollar. Diversifying reserve baskets by adding more currencies will increase the risk of greater turbulence in non-dollar currencies. Finally, replacing the dollar by another super-sovereign currency is impeded by numerous technical implementation problems and cannot function without the backing of the United States. So, although obviously not content with the status quo, China can be expected to rely on the U.S. dollar in the short to medium term.
For the first time since it was announced in November last year, China’s National Development and Reform Commission gave details of the central government’s 4 trillion yuan economic stimulus package. According to the government statement, the central government will provide 29.5 percent–1.2 trillion yuan–of the stimulus funding. The remaining 2.8 trillion yuan will come from local governments, policy loans, local government bonds issued by the central government, corporate bonds, medium-term notes, and bank loans. As to the investment portfolio of the stimulus package, infrastructure is the biggest beneficiary with 37.5 percent of the stimulus spending to be spent on construction projects.
