China says: US dollar is a “product of the past”

Chinese President Hu Jintao has said the international currency system dominated by the US dollar is a “product of the past”. Mr Hu also said China was taking steps to replace it with the yuan, its own currency, but acknowledged that would be a “fairly long process”. The remarks to two US newspapers come ahead of a state visit by the Chinese leader to Washington this week. They reflect continuing tensions over currency issues between the two powers. In a rare interview published in the Washington Post and Wall Street Journal, Mr Hu also reiterated criticism of a decision by the US Federal Reserve to inject $600bn into the economy, which some argue will weaken the dollar at the expense of other countries’ exports.

“The monetary policy of the United States has a major impact on global liquidity and capital flows and therefore, the liquidity of the US dollar should be kept at a reasonable and stable level,” President Hu said. ‘Important contribution’ He meanwhile disagreed with suggestions that letting the yuan appreciate in value would help China to combat inflation. Beijing has previously come under pressure over its currency from the US, which has accused China of allegedly manipulating the yuan to help boost Chinese exports. Despite criticism of the current system, Mr Hu said he believed it would be a long time before the yuan – or renminbi (RMB) – was accepted as a global currency. “China has made important contribution to the world economy in terms of total economic output and trade, and the RMB has played a role in the world economic development,” he said. “But making the RMB an international currency will be a fairly long process.”

Hu calls currency system ‘product of the past’

AFP – China’s President Hu Jintao said Sunday the international currency system was “a product of the past,” but it would be a long time before the yuan is accepted as an international currency. Hu’s comments, which came ahead of a state visit to Washington on Wednesday, reflected the continuing tensions over the dollar’s role as the major reserve currency in the aftermath of the US financial crisis in 2008. “The current international currency system is the product of the past,” Hu said in written answers to questions posed by The Wall Street Journal and the Washington Post. Highlighting the dollar’s importance to global trade, Hu implicitly criticized the Federal Reserve’s recent decision to pump 600 billion dollars into the US economy, a move criticized as weakening the dollar at the expense of other countries’ exports. “The monetary policy of the United States has a major impact on global liquidity and capital flows and therefore, the liquidity of the US dollar should be kept at a reasonable and stable level,” Hu said. China’s own currency, the yuan or renminbi (RMB), is also expected to be a bone of contention in Hu’s talks with Obama, with the United States complaining that it is artificially overvalued to boost Chinese exports.

Asked about the view that appreciation of the yuan would curb inflation in China, Hu suggested that was too simplistic a formula. “Changes in exchange rate are a result of multiple factors, including the balance of international payment and market supply and demand,” he said. “In this sense, inflation can hardly be the main factor in determining the exchange rate policy,” he said. At the same time, Hu signalled no imminent move away from the dollar as a reserve currency, saying it would be a long time before the yuan, or renminbi (RMB), is widely accepted as an international currency. “China has made important contribution to the world economy in terms of total economic output and trade, and the RMB has played a role in the world economic development,” he said. “But making the RMB an international currency will be a fairly long process.” Nevertheless, Hu noted that China has launched pilot programs using the yuan, or renminbi, in settlements of international trade and investment transactions. “They fit in well with market demand as evidenced by the rapidly expanding scale of these transactions,” he said.

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