China and Russia propose a new currency instead of USD

It may be surprising but both China and Russia are proposing strongly to the IMF to come up with an alternate to a USD as an international reserve currency.

They have a point!

The point is that since China, Japan and Russia etc have been holding USD reserves and have thus invested in USD bonds, therefore, they are suffering due to the global imbalance. With United states having a deficit both in current account and its fiscal budget, it has to continue to issue more and more bonds which China, Russia, Japan and other nations have to buy (because for every new issue, there has to be a new buyer else the issue cannot be completed). Hence the fiscally and economically positive countries have ended up holding investments in a country, like USA, where there is no fiscal balance. This causes the imbalance in an interconnected world.

And now, if these countries holding the investment sell the investments, they cause a bigger imbalance, hence the conundrum and the question of an alternative currency.

We are certainly living through interesting times and this decade may be one of the worst over the past hundreds of years:

- Beginning in 2000, with a Technology Bust
- In 2001, denoted by 9/11
- Between 2002 until 2007, the best boom years in stocks and investments with wars in Iraq and Afghanistan and some of the worst terrorist events the planet has ever seen
- In 2008, the worst declines ever, descending into chaos with the financial landscape changing forever and getting worse

It appears that, going forward, with a proposed new currency solution being put forth by some of the strongest fiscal nations who wish to protect themselves, led by the BRIC nations, it seems we will see some more interesting times in 2010 and onwards in the ever changing financial landscape of the world.

This will become a very big issue very soon and will have great implications for all countries with millions of dollars shifting away from USD into other currencies via the proposed basket of currencies.

Financial Times:
China calls for new reserve currency
By Jamil Anderlini in Beijing
Published: March 23 2009 12:16 | Last updated: March 24 2009 00:06

Reuters:
Falling greenback fuels BRIC dollar reserve rethink
Mon Mar 23, 2009 3:00pm EDT