Top Chinese economist: ‘There’s no alternative to the dollar’

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A report from TIME’s Bobby Ghosh:

Fears that China will ditch the dollar are greatly exaggerated: the U.S. currency will remain the world’s dominant financial instrument for the foreseeable future.

That’s straight from one of Beijing’s top economists, Zhang Yuyan, who was among a small group of Chinese officials briefing journalists in New York today. “There is just no alternative to the dollar,” he said.

Zhang is the director of the Institute of World Economics and Politics within the Chinese Academy of Social Sciences. CASS is the country’s top think-tank, and greatly influences Chinese economic policy.

About a third of Beijing’s $2 trillion in reserves is thought to be in US dollars. In March, Zhou Xiaochuan, the governor of the People’s Bank of China, suggested that the global monetary system needed to be reorganized around SDRs ["Special Drawing Rights," the sort-of currency of the International Monetary Fund], rather than the dollar. At the time, this was regarded as a sign that Beijing was alarmed at the U.S. Fed’s inability (or unwillingness) to prevent the dollar from weakening.

Since then, Beijing has sought to diversify its portfolio by buying vast quantities of commodities – oil, iron ore, you name it. It has also bought SDRs: Just last week, the IMF announced that China had agreed to buy 32 billion SDR in bonds – that’s around $50 billion.

For all that, Zhang is convinced that the dollar’s position is secure. “It will be very difficult for any other [currency] to replace it – not in the next 10-to-20 years, at least,” he said.

He said that Zhou Xiaochuan’s call for an alternative to the dollar was no more than one view in “an academic discussion,” and “not China’s policy.”

“There is heated debate in China about [how to invest its reserves],” he said.

Zhang says diversification is prudent, and that Beijing should continue to buy commodities if the price is right.

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