The end of the Dollar is very near!

For a hundred years ago they called it “dollar diplomacy.” This was after World War II, and especially after the fall of the Soviet Union in 1989, this policy evolved into a sort of “dollar ceremony” But after all these many years of great success, the US dollar dominance is now coming to an end. And it is not hard to see the motivation for oil exporters to move away from the dollar. The value of the US currency has fallen sharply since last year’s meltdown. And fears are growing faster, in the light of a spiraling US government deficit, that a further depreciation is likely. They do not want to sell their wares in return for a currency with an uncertain future. So if it is continues with this speed the Dollar will soon be gone as the dominant currency in the business world. It`s time for a change as President Obama said.

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BEIJING Chinese President Hu Jintao emphasized the need for cooperation with the U.S. in areas from new energy to space ahead of his visit to Washington this week, but he called the present U.S. dollar-dominated currency system a “product of the past” and highlighted moves to turn the yuan into a global currency. Chinese President Hu Jintao delivers a speech at a plenary session of the Communist Party of China Central Commission for Discipline Inspection in Beijing on Jan. 10. Mr. Hu’s state visit to Washington begins Wednesday.

Chinese President Hu Jintao

“We both stand to gain from a sound China-U.S. relationship, and lose from confrontation,” Mr. Hu said in written answers to questions from The Wall Street Journal and the Washington Post.

Mr. Hu acknowledged “some differences and sensitive issues between us,” but his tone was generally compromising, and he avoided specific mention of some of the controversial issues that have dogged relations with the U.S. over the past year or so including U.S. arms sales to Taiwan that led to a freeze in military relations between the world’s sole superpower and its rising Asian rival. On the economic front, Mr. Hu played down one of the main U.S. arguments for why China should appreciate its currency that it will help China tame inflation. That is likely to disappoint Washington, which accuses China of unfairly boosting its exports by undervaluing the yuan, making its products cheaper overseas. The topic is expected to be high on U.S. President Barack Obama’s agenda when he meets Mr. Hu at the White House on Wednesday.

Mr. Hu also offered a veiled criticism of efforts by the U.S. Federal Reserve to stimulate growth through huge bond purchases to keep down long-term interest rates, a strategy that China has loudly complained about in the past as fueling inflation in emerging economies, including its own. He said that U.S. monetary policy “has a major impact on global liquidity and capital flows and therefore, the liquidity of the U.S. dollar should be kept at a reasonable and stable level.” Mr. Hu’s responses reflect a China that has grown more confident in recent years especially in the wake of the global financial crisis, from which it emerged relatively unscathed. Mr. Hu reiterated China’s belief that the crisis reflected “the absence of regulation in financial innovation” and the failure of international financial institutions “to fully reflect the changing status of developing countries in the world economy and finance.” He called for an international financial system that is more “fair, just, inclusive and well-managed.”

100 Dollar Soon Not Worth Anything ?

Mr. Hu, who also heads China’s ruling Communist Party, rarely interacts with the international media. The Wall Street Journal submitted a series of questions to China’s Foreign Ministry for Mr. Hu to answer. The Washington Post also submitted questions. The Foreign Ministry supplied Mr. Hu’s responses to seven questions but did not address questions about imprisoned Nobel Peace Prize winner Liu Xiaobo, China’s growing naval power and complaints about alleged Chinese cyberattacks, among others. Mr. Hu’s veiled criticism of the Fed reflects widespread feelings among developing nations that U.S. interest-rate policy is devaluing the dollar, prompting flows of capital overseas and creating inflation elsewhere. China and other developing countries would like the Fed to factor in those consequences when it makes decisions. Fed officials counter that their mandate is to bolster the U.S. economy and that a stronger U.S. economy is in the interests of China and other countries, which depend heavily on trade and investment from the U.S. This could be a major issue of contention between Messrs. Hu and Obama. The U.S. blames Chinese currency under valuation not Fed policy making for worsening competitive and inflation problems overseas.

“This is a new ballgame in the first inning,” says Eurasia Group’s Ian Bremmer about China’s rise. In an interview with WSJ’s Rebecca Blumenstein, Bremmer discusses the growth of Chinese economic and military power and President Hu’s U.S.visit. Some of Mr. Hu’s most significant comments dealt with the future of the dollar and currency exchange rates.

“The current international currency system is the product of the past,” he said, noting the primacy of the U.S. dollar as a reserve currency and its use in international trade and investment.

The comment is the latest sign that the dollar’s future continues to concern the most senior levels of the Chinese government. Beijing fears not only that loose U.S. monetary policy is fueling inflation, but that it will erode the value of China’s holdings of dollars within its vast foreign-exchange reserves, which reached $2.85 trillion at the end of 2010.

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