Economic Crisis International Finance March 30, 2009

Global Economy Today

China (March 23) Reform the International Monetary System Zhou Xiaochuan The outbreak of the current crisis and its spillover in the world have confronted us with a long-existing but still unanswered question,i.e., what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF? DR_chart.gif

IMF SDRs Monday, March 30, 2009 Currency Currency amount under Rule O-1 Exchange rate 1 U.S. dollar equivalent Percent change in exchange rate against U.S. dollar from previous calculation Euro Japanese yen Pound sterling U.S. dollar U.S.$1.00 = SDR SDR1 = US$ The currency value of the SDR is determined by summing the values in U.S. dollars, based on market exchange rates, of a basket of major currencies (the U.S. dollar, Euro, Japanese yen, and pound sterling). The SDR currency value is calculated daily and the valuation basket is reviewed and adjusted every five years.

US M2

Discussion Why is China concerned about their dollar asset holdings? Why many believe the U.S. dollar will depreciate in the coming years? Why it is against China’s economic interest to not simply dump their dollar asset holdings in the global market?