2009-03-23 — ft.com
China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.
To replace the current system, Mr Zhou suggested expanding the role of special drawing rights, which were introduced by the IMF in 1969 to support the Bretton Woods fixed exchange rate regime but became less relevant once that collapsed in the 1970s.
Today, the value of SDRs is based on a basket of four currencies – the US dollar, yen, euro and sterling – and they are used largely as a unit of account by the IMF and some other international organisations.
China’s proposal would expand the basket of currencies forming the basis of SDR valuation to all major economies and set up a settlement system between SDRs and other currencies so they could be used in international trade and financial transactions.
Since all major currencies are fiat currencies, this looks pretty much like a "basket of shit" approach to us. Note the attempted appeal to Keynes:
Mr Zhou said the proposal would require “extraordinary political vision and courage” and acknowledged a debt to John Maynard Keynes, who made a similar suggestion in the 1940s.
That was a very slick misreading. Actually, the original essay by Zhou pointed out that Keynes proposed the SDR be backed by a basket of commodites, not a basket of problematic national fiat currencies no fundamentally different from today's troubled US dollar.
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