China\'s financial statecraft and the internationalization of the Renminbi: what looms over Brazil\'s foreign exchange reserves?

Abstract

and South Korea as well as the European Union. 10 In 2009, the Governor of the People's Bank of China Zhou Xiaochuan called for the replacement of the dollar as the main reserve currency with a "super-sovereign reserve currency" as proposed by J. M. Keynes at the Bretton Woods Conference in 1944 (Zhou Xiaochuan, 2009). 11 Zhang (2015) refers as well to the quantitative easing programs adopted by the European Central Bank and the Bank of Japan. 12 Gao and Yu of the Chinese Academy of Social Sciences (CASS) stated this fact in 2011: "The current crisis has exposed the vulnerability of China's financial position under the existing international monetary system, which is characterised by the domination of the US dollar as the international reserve currency. Because a national currency is used as the international reserve currency, US policy aimed at crisis management has created strong externality to the rest of the world. Because China holds some USD 1 trillion in US dollar assets in its foreign exchange reserves, it has become an easy prey of American domestic policies. The value of China's foreign exchange reserves is in danger of being significantly eroded as a result of the debasing of the US dollar, which is, in turn, a result of the US government's crisis management" (BIS & BoK, 2011, p. 105). 13 As pointed out by Paul Krugman in the wake of the GFC: "China had driven itself into a dollar trap. China acquired its $2 trillion stash-turning the People's Republic into the T-bills Republic-the same way Britain acquired its empire: in a fit of absence of mind. And just the other day, it seems, China's leaders woke up and realised that they had a problem [ ] they are, apparently, worried about the fact that around 70 percent (sic) of those assets are dollar-denominated, so any future fall in the dollar would mean a big capital loss for China" (Krugman, 2009).