First the Chinese called to the world’s financial communities to seriously consider replacing the US Dollar as the standard international trading and investment currency with a new reserve currency. Now they are living up to its promises of unilaterally finalizing currency swaps with a couple of nations on its trading list to build a global economic order less dominated by the West and the wealthy nations. Stripping the West of its economic influence will also help to make their prejudicial Western media less prominent and less imposing on others.
On April 1 2009, China and Argentina had agreed to swap US$14.5 billion (RM53 billion) of their currencies to boost trading volume between the two nations. Argentina is the second largest economy in Latin America and is deemed within the “backyard” of the US. Actually, the whole purpose of the currency swap is to avoid using the US dollars in trade between the two sovereign countries and to allow Argentineans to purchase Chinese goods directly in Yuan.
This is the first time a currency swap has been concluded successfully with a Latin America’s nation. The move aims to help Argentina by cutting trading costs, giving it access to hard currency and strengthening its financial position as it is battered by the global financial crisis. Argentina imported mainly electronics, computers and chemicals from China, and it exported chiefly commodities such as wheat and soy beans.
Besides this, China had also completed similar deals with Belarus, South Korea, Indonesia, and Malaysia. I have a strong feeling that there are more of the same deals with other trading countries which would be announced in the near future.
The Argentina’s central bank governor in support of the swap told the media that his country backed China’s suggestion to replace the US dollar with a broader based alternative like a reserve currency issued by the International Monetary Fund. Chinese central bank governor commented that the special drawing rights of the IMF shall comprise a basket of the yen, euro and pound sterling and not only the US dollar. Additional support for change is provided by Venezuela, a strong ally of the Chinese government. On the same vein, Russia also recommended that the IMF considers issuing the world’s currency, and emphasized the need to update "the obsolescent uni-polar world economic order."
Asian countries (excluding Japan which tend to be a US’s self-appointed speaker) progressive support for the new proposal also indicated that Asia might be adopting the Yuan as the main Asian currency unit in the future as China gains intra-trade prominence as the second largest economy, overtaking the Japanese economy, in about 5-6 years from today.
It is understandable that the Chinese, being a large holder of US government bonds, are increasingly worried of the value of its US dollars assets of which it has no control. News that the US may finance its huge stimulus package by printing more money will trigger a fall in the value of the US dollar, thus negating the value of its US dollar held assets.
The US being the largest economy at USD13 trillion (as compared to China’s USD3.4 trillion based on 2008’s rankings), holds 17% voting power in the Western dominated IMF and as such, is still directly influential in the restructuring of the governance of the world international financial systems. And China’s proposal to replace the US currency may be rejected. China called for a greater voice for the developing countries may be tabled instead at the G20 forum.
China as the third largest economy presently is lumped together with Switzerland and Austria with the same voting rights. Where are the Western media and the NGOs voices in support of fairness and proper democratic rights based on economic influence and the size of its populace as reflected in the world’s financial body? As usual, the West’s self-righteousness becomes muffled suddenly or it fell conveniently into a “volunteered silent hole”. Never mind, the West thinking has been clouded by matters such as Tibetan rights and independence which are more important.
In reality, the establishment of a world reserve currency with a stable valuation may take some time as agreed by the Chinese bank’s governor but efforts must begin from somewhere, however, small that effort may be. China’s currency swaps are laudable as it is a step in the right direction to make international trade and investment less reliant on the US dollar and also, to a certain extent making the US less dominant in the world’s new financial structure.
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