Share this article What's This?

Social bookmarking helps you store, organize and share web pages you visit. Bookmarks are usually public, but can be saved privately or shared with specific people or groups. Many services also provide the ability for rating and commenting on bookmarks.

To create a collection of bookmarks, you need to register with a free social bookmarking site (examples include Digg, Delicious, and Newsvine). You will then have the ability to create your personal library, storing bookmarks, "tagging" them with keywords, and sharing them how you please. You will also have the ability to access other people’s bookmarks by keyword, person, or popularity.

digg.com	www.delicious.com	www.google.com
www.facebook.com

Fisher Investments MarketMinder:

Short One Alien Invasion

Chinese officials continued their anti-dollar rhetoric Tuesday.

Topic:

Currencies

3/25/2009 By Fisher Investments Editorial Staff

Story Highlights:

China once again called for a move away from the US dollar as the world’s reserve currency Tuesday, replacing it with a global monetary unit of exchange.
China’s complaints about the current system are nothing new. Despite the rhetoric, they continue to buy dollar-denominated assets.
America remains a safe place to invest, and implementation of a global currency would be fraught with political and economic stumbling blocks requiring decades to navigate.
Either way, global investors need not worry overmuch—proper diversification among countries over time reduces risks such as these.

_________________________________________________________________

Science fiction classic, Ender’s Game, holds it’ll take an extraterrestrial threat to unite the Earth. And even then a global alliance would be shaky. Pending a bugger invasion from a galaxy far, far away—some seem intent on uniting the world with words (at least economically). To that end, Chinese central bank governor, Zhou Xiaochuan, called for a move away from the US dollar as the world’s reserve currency Tuesday, replacing it with a global monetary unit of exchange.

China’s complaints about the current system are nothing new. The Chinese have effectively subsidized their exports by strictly managing the exchange rate between the renminbi and the dollar for years, keeping the value of the Chinese currency artificially low. To sustain this policy, China must buy and hold a large store of dollar-denominated assets, mostly Treasury bonds. And recently, they’ve made no bones about their concern Washington’s economic policies pose risks to this massive investment. Further, China’s dependence on the dollar isn’t unique. Due to its wide acceptance as a safe currency, many other countries use dollar-denominated assets for international trade settlement. So it’s no surprise the Chinese feel the time’s right to flex their rhetorical muscle—today’s climate will likely yield some support.

But what China’s statement doesn’t say is they have a choice in the matter (as do other countries)—even if it’s implied they don’t. They could float their currency and decrease exposure to the dollar at any time, and other currencies could be used to settle trade. Yet despite the rhetoric, that isn’t happening—quite the opposite, in fact. Why? Because the current strategy still works to China’s advantage, of course.

There’s no covert elite that makes this so. The global economy is too big and complex for one group to control monetarily. The reason things are as they are is simple. America is the biggest, historically most stable country around—today’s crisis notwithstanding. As long as China’s export-oriented policy remains, they need a favorable balance of trade with the US, the biggest economy in the world—their choice, not ours. And nice as a global currency sounds, implementation would be fraught with political and economic stumbling blocks requiring decades to navigate. (The European Currency Unit (ECU) was first created in 1979, but the euro wasn’t officially adopted until 1999. Now, scale that globally.)

The Chinese know all this—as their actions, not words, indicate. China bought $12.2 billion of Treasuries in January alone. And global investors need not worry overmuch either way. Any material changes would be years out. Further, proper diversification among countries means shifts in global economic power have little effect on portfolio performance.

Assuming our fortunate poverty in alien invasions keeps Will Smith in Hollywood—this is one topic we think investors can safely ignore for now.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

Comments
The following represents commentary by Fisher Investments' staff members on the content of the foregoing article. All comments are subject to the full disclaimers of the MarketMinder.com website located here.

22 Comments

Interesting story
Added by CM on 4/22/2010 4:59:51 PM
China has long complained about the US dollar as the world's standard, calling for the creation of a new global reserve system. Even though other countries have supported these complaints, it's unlikely this will amount to much of anything.

China Can Complain All They Want About the Dollar...
Added by EBA on 4/21/2010 4:54:36 PM
But they aren't moving off of it any time soon!! Most Americans who complain about US debt in China don't realize the Chinese would be hurt far more than we would if they abandoned the dollar.

The End of the US Dollar? Really?
Added by DE on 4/19/2010 4:58:08 PM
I've read about many complaints regarding the currency battle between China and the US. I've even seen news articles claiming the end of the US dollar as the world's reserve currency is near. This story on Fisher Investments MarketMinder really helps to clear up some of these unfounded fears and lists reasons why there's little fact in China's complaints about the greenback.

Just Gripes
Added by CF on 4/13/2010 4:12:20 PM
We can complain about China and China can complain about the US. But when push comes to shove, it's clear the two countries are in a symbiotic relationship where both benefit. Sure we may gripe China takes away US jobs, and China gripe about having to hold our dollar as reserve currency, but if these things really hurt our respective economies, we probably wouldn't engage each other.

Past Experience
Added by KRB on 4/9/2010 3:13:18 PM
I learned a lot about the US's relationship with China by working for a textile import company for 10+ years in a past career. Our biggest complaint was rapidly changing prices, availability of resources, and on-time deliveries. Since working for Fisher Investments, I've learned even more about the politics involved and those "complaints" now make a lot more sense.

Concerns Are Overblown
Added by TM on 4/7/2010 4:42:15 PM
Even if the world moved away from the dollar and created a new world reserve currency – it would not happen overnight. I have to imagine that creating a new global reserve currency is no simple task. Even if it did happen, it would not catch anyone by surprise – global investors would have plenty of time to react. That is why I think a lot of the concerns with China are overblown. Regardless, as the article points out, a new reserve currency is unlikely to appear any time soon.

Action Unlikely
Added by EC on 4/6/2010 4:56:33 PM
As a Fisher Investments employee, I’m required to read a lot of news stories—and it seems China’s been in the headlines a lot in the past year. They’ve complained about the US dollar being the world’s reserve currency, complained about the US interfering with the renminbi, etc. But as long as China continues holding US debt, it’s unlikely any action will stem from these complaints.

In Stride
Added by AM on 4/5/2010 5:10:14 PM
All these currency complaints of late aren't justified. I've learned to take these claims in stride. I personally don't expect this to materially impact the market.

More squabbling...
Added by JD on 4/1/2010 3:30:13 PM
Recent weeks have dredged up this squabble yet again—this time, instead of the Chinese complaining about US currency dominance, it’s Washington lobbing threats across the Pacific. If the Chinese don’t drop their peg—we’ll charge tariffs on their goods! (Don’t we ever learn?) Despite continuing complaints by both the US and China, as Fisher Investments points out here, substantive action is still missing—let’s hope it stays that way.

Largest Holder of US Treasuries?
Added by TM on 3/29/2010 8:27:06 AM
These are not new complaints from China. The Fisher Investments editorial staff does a good job outlining the issue and pointing out that China continues to buy US treasuries. There’s another MarketMinder article about China that I think is pretty good from 2/17/10 and it discusses who is the largest holder of US treasuries (spoiler – it’s not China).

Same Old Story
Added by CM on 3/25/2010 4:03:43 PM
This Fisher Investments MarketMinder article clearly illustrates that China's complaints about the US dollar are the same we've heard before. The fact still remains that the US dollar is stable and I see no need to worry about a change in the world's reserve currency.

Pegging the Currency
Added by EBA on 3/24/2010 7:32:09 AM
Many, including hundreds of members of Congress, like to complain about the pegging of China’s currency. These complaints aren’t justified. They’re not acknowledging that many currencies are pegged to the dollar.

Currency Moves
Added by DE on 3/23/2010 7:13:30 AM
As a Fisher Investments employee, one of my responsibilities is to read and review relevant business news. Lately, I have seen several complaints over whether or not the greenback should be the world reserve currency. China seems to feel as though there should be a move to another currency but I think that’s highly unlikely. Either way, investors shouldn’t worry about the effects of currency moves on the market as there is little impact.

US-China trade
Added by EC on 3/22/2010 8:34:29 AM
I’ve noticed a lot of complaints and concern regarding China lately. Complaints about the US-China trade deficit, China holding a large amount of US debt and demanding replacing the dollar with another reserve currency, etc. However, as a Fisher Investments employee, I believe fears surrounding China are unfounded. Even though China may complain about the US’s state of fiscal affairs, they continue to buy US debt—and as they say, actions speak much louder than words.

Yuan vs. RMB
Added by KRB on 3/19/2010 7:19:47 AM
Prior to working at Fisher Investments, I travelled to China for business in the early 90’s through the early 00’s. The first time I went to China in 1992, I didn’t understand why I had to spend Yuan, when my Chinese counterpart spent RMB (back then they looked different and the exchange rate was different). It was explained that Yuan was for foreigners and RMB for locals. I didn’t complain when my dollar didn’t go as far with the Yuan –it was my first time to China and I was not about to complain any more. Things have changed a lot since then!

Recycled Complaints
Added by AM on 3/18/2010 8:04:18 AM
It seems like China has new complaints surrounding the dollar—these complaints are the same recycled complaints of the past. These complaints don’t really hold water, the dollar is very stable and I have no doubt it will remain the reserve currency.

Another Currency?
Added by CF on 3/17/2010 7:18:26 AM
China has complaints about the US dollar being used as reserve currency and many other countries have also supported their complaints. However, all this talk likely won’t amount to anything. Proposals for another currency have quickly tapered off. At Fisher Investments, this is an issue we don’t see as a big deal for the market at this juncture.

Currency Complaints
Added by JM on 3/16/2010 7:46:41 AM
Seems like news about complaints over the dollar, and its role as the global reserve currency are never ending. These complaints come from various countries, and likely carry widely different motivations. But the fact of the matter is, it’s unlikely the situation would change anytime soon. Especially in the wake of such a widespread global recession, a little stability is always welcome. That’s what the US, and its currency, offers to the global financial system. In my opinion, this article on Fisher Investments Marketminder explains this situation well.

Welcome Stability
Added by JM on 3/15/2010 7:07:46 AM
On Fisher Investments Marketminder, we talk about China quite a bit. This one article about China’s complaints regarding the dominance of the US dollar is nothing new out of China, and they’re unlikely to gain serious traction on the global economic scene. The dollar is a stable reserve currency, and there’s no real reason that would change anytime soon.

China Worries
Added by CF on 3/12/2010 7:33:30 AM
I’m with Fisher Investments and think worries over recent Chinese complaints about the US dollar are overblown. People worry if China stops buying US Treasuries, or sells them, we would see a lack of liquidity to fund our recent spate of fiscal stimulus. But China isn’t in a position to move away from the US dollar as long as the two remain major trading partners.

America is Strong
Added by CF on 3/11/2010 7:18:33 AM
I work at Fisher Investments and read in the news a lot of complaints by China about the US dollar. They feel the US dollar shouldn’t be the world’s reserve currency because America’s easy economic policies can make the value of the dollar go down, hurting their investments. But I believe America is still the biggest, most stable country in the globe and its currency still relatively the most liquid and safe, making these complaints moot.

Global Reserve Currency
Added by CF on 3/10/2010 7:23:02 AM
As a Fisher Investments employee, I’ve read a lot in the news about China’s complaints over the US dollar being the global reserve currency. China voiced their complaints by calling for countries to move away from using the US dollar for reserves. However, this is likely rhetoric since China needs to hold massive amounts of dollars as reserves because they do so much trade with the US and in US dollars and manipulate the exchange rate between the two currencies.