China wants to divorce the dollar. Good move. The dollar is on the brink of considerable depreciation. Premier Wen Jiabao is concerned looming inflationary pressures will sharply decrease the value of American debt held in Chinese banks. In order to encourage create greater monetary stability, Zhou Xiaochuan wants to create an international currency unit that can be used in trade as well as a standard against which other currencies can be pegged.
Zhou, an economist who is currently the Governor of the Peoples Bank of China, is absolutely right. We do have a global economy. To facilitate trade, we need an international currency. I mean, how can we have a global economy unless we also have a global currency? The dollar, which used to provide the functions of a reserve currency, has been decimated by Congressional ineptitude, administrative failure, and ideological egotism. Few believe it will recover any time soon.
So. The idea of an international currency is worth considering. Assuming the creators are able to make policy decisions based on constructive wisdom. If the dialogue degenerates into a political power play among participating nations, then nothing good can come from the effort.
By the way, we also need to create a way to regulate the international financial system, uniform international commercial law, and a uniform way to regulate international corporations. Current practice invites confusion, conflict and confrontation.
But for now, I’ll settle for a constructive dialogue on the subject of an international currency. Will the participants choose to peg the value to gold?
TCE
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