Can China Topple The Dollar?(Business)

Byline: Daniel Drezner

To hear some tell it, China is campaigning to topple the dollar as the world's reserve currency, and just might get the job done soon. In March, China's central-bank governor, Zhou Xiaochuan, proposed the creation of "a super-sovereign reserve currency," and while he did not mention the dollar explicitly, the target was unmistakable. The dollar's role since the 1940s as the unit of account for most international trade and financial transactions has privileged American finances and American power. Losing that position would take America down a peg and open up the door to China, which followed up on its super-sovereign idea by initiating deals designed mainly to swap the yuan for the dollar in its trade with nations from Belarus to Brazil. And in a separate move that the Financial Times claimed was an effort to diversify away from the dollar, China has doubled its gold holdings over the past five years.

This flurry of activity has made some China watchers jittery: Nicholas Lardy, an expert on China's economy at the Peterson Institute for International Economics, soberly concluded that the United States has "no leverage." And economist Nouriel Roubini is warning that the Asian century, "dominated by a rising China and its currency," could begin in less than a decade if America doesn't get its "financial house in order."

But the dollar's reign is not about to end any time soon. Its role as a reserve ...