By researcher Colin Jones

(Caijing.com.cn) The governor of China’s central bank has called for a new “super-sovereign” currency to depose the dollar from its central role as the global standard.

Zhou Xiaochuan’s proposal, posted March 23 on the Web site of the People’s Bank of China, 10 days before an economic summit of world leaders in London, was the latest indication that China is uncomfortable with the contingent value of its massive dollar reserves.

The global financial crisis and “its spillover to the entire world reflects the inherent vulnerabilities and systemic risks in the existing international monetary system,” said Zhou.

He suggested each country relinquish control of a portion of its reserves to the International Monetary Fund in exchange for a claim to IMF assets. This claim, known as a Special Drawing Right, could then be traded for other currencies and eventually become a means of payment in its own right, said Zhou.

Earlier on March 13, Chinese Premier Wen Jiaobao said he was “a little bit worried” about the security of China’s U.S assets. And a few days earlier, the director of the National Economic Research Institute, Wang Xiaolu, wrote in a guest column for Caijing, “Having already loaned half of China’s foreign exchange reserves” to the United States “we have gotten into a spot where we have to keep lending to protect our previous investments. But by (buying) more dollars, we tie ourselves to a leaking boat.”

As the U.S. government has continued borrowing to finance its economic bailout plan, Beijing has increasingly questioned the security of China’s dollar-denominated reserves. Totaling US$ 696.2 billion at year-end 2008, China’s U.S. Treasury bond investment is the largest in the world.

Neither the United States nor the dollar were mentioned by name in Zhou’s essay, but the implication was clear as he expressed concern that over-reliance on a single, national currency has increased instability in the global economy.

“The frequency and increasing intensity of financial crises following the collapse of the Bretton Woods system,” after which the dollar became the de facto currency for international trade, “suggests the costs of such a system to the world may have exceeded its benefits,” Zhou wrote.

He said a nationally independent, “super-sovereign” global reserve currency would prevent the kind of credit spike that precipitated the ongoing financial crisis.

“Although crisis may not necessarily be an intended result of the issuing authorities, it is an inevitable outcome of institutional flaws,” Zhou said.

Russian officials made a similar argument recently after meeting with central bank managers from China, India and Brazil. Moscow said it would propose the creation of a new international currency at the G20 summit in London on April 2.

Michael Pettis, a professor at Peking University’s Guanghua School of Management, said recent proposals for an international currency are likely more politically motivated than they are practical.

There are a number of problems with an international currency, said Pettis, chief among them being how to decide the money supply. “Determining the amount of SDR in circulation is either extremely political, as it is in Europe with the euro, or the supply is tightly regulated, which gets into the same issues we saw during the gold standard,” said Pettis.

Yesterday, U.S. President Obama voiced opposition to an international currency during a televised news conference. That same day, U.S. Treasury Secretary Timothy Geithner and Feral Reserve Chairman Ben Bernanke told a congressional hearing they would categorically renounce the U.S. moving toward a global currency.

Former British Prime Minister Tony Blair told Caijing March 25 after a climate conference in Beijing he thought Zhou’s proposal was interesting, but he wasn’t sure about its feasibility.  “I think you are more likely to find several strong currencies in the world,” Blair said. “In one sense, it’s the investors who will decide.”