Bloomberg.com is reporting today that Suresh Tendulkar, an economic advisor to Indian Prime Minister Manmohan Singh, is advising the Indian government to diversify its $264.6 billion foreign-exchange reserves and hold fewer dollars.
China and Russia have been asking for a reevaluation of the use of the US dollar as the global currency reserve for a while.
The article points out:
"There should be a system to maintain the stability of the major reserve currencies," Former Chinese Vice Premier Zeng Peiyan said in a speech in Beijing yesterday, highlighting China's concerns about a global financial system dominated by the dollar.
Fiscal and current-account deficits must be supervised as "your currency is likely to become my problem," said Zeng, who is now the head of a research center under the government's top economic planning agency. The People's Bank of China said June 26 that the International Monetary Fund should manage more of members' reserves."
There are a lot of reasons for Russia and China to want to remove the dollar as the global currency; some of those reasons make sense economically and some of them have to do with power struggles. Russia and China see a move away from the dollar as something that would weaken America. They see a weaker America as having less influence in the world, allowing them to have more influence.
The role America has played in the current worldwide financial crisis provides an excuse for Russia and China to attempt to remove the dollar as a global currency. Because of the reckless spending of the current United States government, there are some serious questions about how stable the US dollar will be in the near future. You cannot print money and create debt at the rate Washington is currently doing both and not cause inflation. Inflation means that the American dollar decreases in buying power and may be considered unstable. Common sense says you do not want to holding a lot of unstable currency that is rapidly losing its value.
I don't know if Russia and China will succeed in removing the dollar as the global currency, but I do know that it is something they have wanted to do for a long time. Let's hope enough sanity arises in Washington to stop the runaway spending and stabilize the dollar.
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