ARGUMENT How China’s ‘Currency Manipulation’ Enhances the Global Role of the U.S. Dollar
On April 16, Zhou Xiaochuan, the governor of China’s central bank, the People’s Bank of China, once again set off alarm bells during a speech at the International Monetary Fund (IMF). “Starting from this April,” heannounced, “China has released foreign exchange reserve data denominated in the SDR in addition to the USD.” He went on to say: “We will also explore issuing SDR-denominated bonds in the domestic market.” After many years of announcing monthly the value of its foreign currency reserves only in dollars and renminbi, the Chinese currency, the People’s Bank has begun to announce their value in Special Drawing Rights (SDRs), a weighted index set by the IMF consisting of the dollar, euro, Japanese yen, pound sterling, and, beginning in October, the renminbi. This, according to a People’s Bank statement, “would also help enhance the role of the SDR as a unit of accounts.
The announcement raised eyebrows among many central bank watchers. Within days, Hong Kong’s South China Morning Post warned that the bank’s latest move confirmed its strategic goal to “end the US dollar’s hegemony” and “forge a new global financial order.” In an article for the financial publication MarketWatch, research analyst David Marsh tried to suggest a wider strategy: “The world’s second-largest economy is embarking, pragmatically but steadily, toward enshrining a multicurrency reserve system at the heart of the world’s financial order.”
Marsh, like many other analysts who have repeated the popular but confused story about the rise of the renminbi and the decline of the dollar, may have misunderstood the role of reserve currencies within the global balance of payments. Whatever Beijing may think it is doing, its economic policies since the 1990s have, in fact, enhanced the reserve role of the dollar. To do otherwise would have undermined China’s economic development. A reduced reserve role for the dollar would, in fact, make China’s already difficult economic rebalancing — shifting its economy away from investment and toward domestic consumption — costlier than ever.