For Asian countries, however, the key agenda issue is the safety of their assets denominated in dollars, as they look ahead to a devalued dollar from rising US sovereign debt.

Yu Qiao, Tsinghua University, Beijing

As Mr Zhou says, a reserve supercurrency could be created through further issuance of the International Monetary Fund’s Special Drawing Rights – the IMF’s in-house reserve asset. To enable and encourage take-up, he proposes wider uses for the SDR and giving some surplus countries’ reserves to the IMF for it to manage. Married with other necessary reforms, this plan would also empower the IMF to act more flexibly. Good.

But China’s dollar-heavy reserve accumulation was not just insurance – it supported an aggressive, mercantilist trade policy. Beijing kept its currency weak to bolster exports and measured success in terms of how export-dependent it became. Mr Zhou’s proposal is useful and constructive – but China should still raise domestic consumption. It must not just replace its mountain of dollar assets with heaps of other currencies.

FT: Comment

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