On several occasions leading Chinese officials, including head of the People's Bank of China Zhou Xiaochuan, (see link) have proposed introducing a super-currency for government debt. The super-currency would not be a currency of an individual country or region, but rather a currency for all countries priced on a weighted average of the major world currencies.
While a nice sounding idea, a super-currency is the equivalent of creating the language of Esperanto. A super-currency would add another layer of financial complexity without solving anything. In either of the two situations below, the benefits of a super-currency are limited.
Situation 1: The RMB is not one of the weighted currencies for the super-currency.
The Chinese Government attempts to balance the risks of their foreign currency reserves by using a mix of currencies. While China could use a super-currency to balance the risks, purchasing treasury bonds from a variety of countries in a variety of currencies could produce a similar result. For example, buying reserves in a super-currency weighted at 50% US Dollar, 30% Euro, 20% Yen would produce similar results for China to placing 50% of its reserves on US Treasury bonds, 30% on Euro bonds and 20% on Yen bonds. Purchasing bonds from around the world would be simpler and less costly than setting up a new currency system.
Situation 2: The RMB is one of the weighted currencies for the super-currency.
If the RMB were one of the currencies used to weight a super-currency, China could experience negative financial effects. If foreign countries use the RMB to hold reserves, demand for RMB will increase. With China operating a controlled exchange rate, an increase in demand for RMB will lead to China accruing more foreign exchange reserves. Increasing foreign currency reserves seems a counter-intuitive solution to decreasing the risks associated with the reserves.
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