In my last blog l suggested that the most important meeting to be held during the G20 London Summit would be the G2 meeting for the first time between US President Barack Obama and the Chinese President Hu Jintao, a point also made by the Economist.
Now, what do you think is uppermost in the minds of the Chinese? Well, it is not the regulation of global finance, particularly hedge funds, as it is for the French and the Germans. It is not a continued fiscal stimulus to the global economy, as it is for the United States and United Kingdom. Nor is it how the G20 can prevent a retreat into protectionism and promote free trade, in circumstances where many economic historians point out the parallels with the 1930s. Nor is it how the IMF will need more money to bail out countries going bust like Iceland, Hungary and Ukraine – since the Chinese have already agreed to help as long as the IMF is reformed and China has more say. Nor is it a clampdown on offshore tax havens, as governments desperately attempt to bring as much revenue as possible back onshore to boost state coffers. Nor is it environmental and development concerns, as the Chinese are starting to pursue a low carbon future and have already become a major source of funds to the developing world.
No, it’s China’s plan to end the dollar era. In China it appears to be a debate between the likes of Zhou Xiaochuan, governor of China’s central bank, who has put forward a credible proposal for a reserve currency to rival the greenback (Financial Times, 24 March), and the likes of Professor Yu Qiao of Tsinghua University discussing how Asia can protect itself from a dollar default (Financial Times, 1 April). The latter response is not surprising given that the Chinese are the largest holder of US dollar financial assets and they express the same anxiety as savers who fear a run on a bank. So it is understandable that China wants to replace its mountain of dollar assets with heaps of other currencies. It would be in China’s interest to have another safe reserve currency and take an active role in the reshaping the world monetary economy.
So while the focus during the next day or so will be on all the other issues mentioned above, in the long run the G20 London summit is going to be remembered as the beginning of a process, possibly taking up to 20-odd years, to replace the greenback and a world economy working for the Yankee dollar.