Home > China, Dollar > Chinese President Hu Disses the Dollar; Says U.S. System is a ‘Product of the Past’

Chinese President Hu Disses the Dollar; Says U.S. System is a ‘Product of the Past’

January 17, 2011

Dec. 31, 2010: Chinese President Hu Jintao delivers a New Year's address in Beijing.

“The current international currency system is the product of the past,” Hu noted in answers to questions submitted to his foreign ministry office by The Wall Street Journal and the Washington Post.

BEIJING—Chinese President Hu Jintao emphasized the need for cooperation with the U.S. in areas from new energy to space ahead of his visit to Washington this week, but he called the present U.S. dollar-dominated currency system a “product of the past” and highlighted moves to turn the yuan into a global currency.

“We both stand to gain from a sound China-U.S. relationship, and lose from confrontation,” Hu said in written answers to questions from The Wall Street Journal and the Washington Post.

Hu acknowledged “some differences and sensitive issues between us,” but his tone was generally compromising, and he avoided specific mention of some of the controversial issues that have dogged relations with the U.S. over the past year or so—including U.S. arms sales to Taiwan that led to a freeze in military relations between the world’s sole superpower and its rising Asian rival.

On the economic front, Hu played down one of the main U.S. arguments for why China should appreciate its currency—that it will help China tame inflation. That is likely to disappoint Washington, which accuses China of unfairly boosting its exports by undervaluing the yuan, making its products cheaper overseas. The topic is expected to be high on U.S. President Barack Obama’s agenda when he meets Hu at the White House on Wednesday.

Hu also offered a veiled criticism of efforts by the U.S. Federal Reserve to stimulate growth through huge bond purchases to keep down long-term interest rates, a strategy that China has loudly complained about in the past as fueling inflation in emerging economies, including its own. He said that U.S. monetary policy “has a major impact on global liquidity and capital flows and therefore, the liquidity of the U.S. dollar should be kept at a reasonable and stable level.”

Trading of the yuan was opened in the U.S. at three Bank of China locations in Los Angeles and New York. Those interested to do so must open a yuan account at one of those branches to begin trading. That news came six months after the first international yuan trading that opened in Hong Kong in July 2010. That story, here.

One of the sorest points between the U.S. and China of late is the Federal Reserve’s anti-inflation policy for the dollar and its refusal to raise interest rates. China’s view is that while there is virtually no inflation in the U.S., there is plenty in rest of the world and the value of the dollar has decreased as a result of it all. That would imperil, and potentially devalued the almost $3 trillion stake in our currency held by the Chinese.

Hu’s responses reflect a China that has grown more confident in recent years—especially in the wake of the global financial crisis, from which it emerged relatively unscathed.

Hu reiterated China’s belief that the crisis reflected “the absence of regulation in financial innovation” and the failure of international financial institutions “to fully reflect the changing status of developing countries in the world economy and finance.” He called for an international financial system that is more “fair, just, inclusive and well-managed.”

 

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