Reuters is reporting that Chinese officials have confidence that the U.S. Dollar will remain the worlds reserve currency.
ROME, July 5 (Reuters) - Chinese Vice Foreign Minister He Yafei said on Sunday the U.S. dollar would continue to be the world's leading reserve currency for years to come.
"The U.S. dollar is still the most important and major reserve currency of the day, and we believe that that situation will continue for many years to come," He told a news briefing in Rome before this week's Group of Eight summit.
I believe it is significant that the Chinese are deliberately talking up the dollar in advance of the G8 summit.
Recently, it was noted around the world when the Governor of the People's Bank of China, Zhou Xiaochuan floated the idea of replacing the dollar as the world's reserve currency. This statement, compounded with Premier Wen Jiabao's statments about China's worries about the stability of its Treasury holdings led to some rather stark speculation about the future of the dollar.
The Obama Administration was aggressive in its response:
In a coordinated response to blunt comments from Chinese Premier Wen Jiabao, White House officials said Friday that Mr. Obama intends to return the country to fiscal prudence once the crisis passes.
"There's no safer investment in the world than in the United States," said presidential spokesman Robert Gibbs.
Chinese officials are now walking back previous comments. From Mr. He:
He said discussion about reserve currencies had intensified since the outbreak of the global financial crisis, which he said had revealed "many shortcomings in the international monetary system".
However, he described this as an intellectual debate.
"You may have heard comments, opinions from academic circles about the idea of establishing a super sovereign currency. This is all, I believe, now a discussion among academics. It is not the position of the Chinese government."
Why the sudden change in the Chinese talk about dollar? I believe it has something to do with this:
Bankers reckon China holds perhaps 70 percent of its $1.95 trillion in official currency reserves in the dollar.
China has no interest in devaluing the savings of its hard earned work. It is significant that China wants the matter discussed at the G8, but is making clear that such discussions are "academic."