I am sure that the Chinese are well aware of the pitfalls of commodity based currencies. After all, they had fiat currencies during the Ming dynasty, and replaced it with silver, only to be crushed by a silver shortage toward the end of the dynasty. During the Great depression, bis repetita : the American Purchase Silver Act did a lot to bring China’s Economy to its knees.
Please correct me if I am wrong, but I was under the impression that the Keynes system was not strictly anchored to commodity : it would have been possible to devalue ALL national currencies against the bancor. May be this is exactly what is needed in current circumstances !

In such case, by including the Yuan in the SDR basket, the Chinese just want to claim their share of global seignioriage.

Matt, there is a lot of argument about optimal reserve accumulations strategies, but many countries do need liquid reserves to protect their currencies and their access to imports. At any rate reserve accumulation is not a choice separate from trade policies.

I agree with you it might be more with political/policy considerations. I guess it has probably achieved what they want, expressed its attitude, created a favorable atmosphere and led to a wider global discussion and joiners.

There is an old Chinese saying, if you deal with a tiger, still not sure it is the right timing facing it directly, the best way would be knocking at the cave where the tiger lives and test it.

THE PERCEPTION IN US FINANCIAL MARKETS IS THAT THE CHINESE STIMULUS IS WORKING, AND THAT RISING ECONOMIC ACTIVITY IN CHINA IS BEHIND THE RECENT RISE IN OIL AND OTHER COMMODITY PRICES. MANY BELIEVE THAT THE CHINESE STOCK MARKETS HAVE BOTTOMED AND ARE RECOMMENDING INVESTMENT IN CHINESE STOCKS.

I AM DISMAYED BY THESE OPTIMISTIC VIEWS, AND CONCERNED THAT WHEN THE REALITY OF THE SEVERE AND LONG LASTING ADJUSTMENTS THAT CHINA MUST MAKE BECOME APPARENT THERE WILL BE A SHARP REACTION IN THE MARKETS.

THE CHINESE AUTHORITIES ARE UNDERSTANDABLY PUTTING UP A CONFIDENT AND OPTIMISTIC FACE, BUT UNDERNEATH I SUSPECT THEY ARE DEEPLY WORRIED AND PERHAPS EVEN PANICKING. PERHAPS THAT IS WHY YOUR WEB SITE WAS SHUT DOWN.

I AM ESPECIALLY CONCERNED BY THE OUTPOURING OF CREDIT INTO A CONTRACTING ECONOMY, WHICH STRIKES ME AS VERY UNWISE. THIS IS BOUND TO WEAKEN THE FINANCIAL SYSTEM AND CREATE PROBLEMS IN THE FUTURE. I WONDER IF THIS EXCESSIVE LENDING IS FINDING ITS WAY INTO THE STOCK MARKET, WHICH MAY EXPLAIN THE BUOYANCY OF CHINESE STOCKS IN THE FACE OF GROWING INDUSTRIAL DIFFICULTIES.

THE CHINESE AUTHORITIES NEED TO DO EVERYTHING POSSIBLE TO QUICKLY CHANNEL THEIR RESOURCES INTO WELL CONCEIVED INFRASTRUCTURE PROJECTS, ESPECIALLY IN RURAL AREAS AND FOR LOW COST HOUSING. THIS WILL TAKE TIME, BUT I FEAR THAT ARTIFICIALLY PUMPING OUT CREDIT AND SUBSIDIES WILL DO MORE HARM THAN GOOD.

THANKS FOR PROVIDING THIS RESOURCE. I WILL BE RETURNING FREQUENTLY TO TRY TO UNDERSTAND WHAT IS HAPPENING IN CHINA. I FERVENTLY HOPE THAT THE TRANSITION TO A NEW ECONOMY WILL NOT BE TOO PAINFUL FOR THE CHINESE PEOPLE.

Naturally, the thoughts of the NitWit are 90 percent trash. Or maybe, 99 percent trash, from your perspective. But, the fact is that you are writing your thoughts to be read by a wide distribution of people who read your blog. And, when you ask these readers to “Share Your Thoughts”, then you should not feel angry or disturbed just because some readers’ comments are both weird and also seemingly quite crazy or contrary compared to your point of view.

As a matter of fact, some of the well considered views which you express on this blog seem quite weird to some, probably.

For example, and one can not emphasize this enough, your discussion of the possibility of when China’s economy would overtake that of the US economy sparked much debate, many months ago. But, maybe the downfall of your argument at that time still stems from your neglect to take into account the real world issues of things such as energy production, and the will to control energy resources, either by smart trading ways of China, or by US military might.

For example, it might be better if there were some way to have you input the real world data into your arguments when discussing GDP growth. That is, if you would read the most recent reports being put out by the intergovernmental energy organizations, or the privately funded energy organizations, then this might be extremely helpful to your economic calculations and prognostications of what might reasonably happen soon, economically speaking. Even though there still remains quite a bit of disparity and lack of consensus regarding opinion concerning the dire energy straits in which we now find ourselves, still any thinking individual can not deny that these dire straits are just a matter of degree.

Being a NitWit, and not a member of any group with rarefied intellectual acumen, such as most posters on this blog, sometimes it is difficult to make logical sense of your arguments, when also reading real reports about the real world.

Here is an example: After many years in the petroleum industry, some guy by the name of Matthew Simmons has been saying that petroleum based energy production is headed for a downfall due to depletion of reserves and also due to depletion of intensively trained personnel and also due to rusting away of antiquated infrastructure. And maybe, anyone could denigrate this man’s logic.

But the thing that buggers ones mind is that you can still almost not even take this man’s 30+ years of experience into account, all the while knowing that petroleum production is, and has been, so tightly correlated with past US economic growth, and still not make a SINGLE little mention of these real world energy related constraints which might influence your opinion about whether or not GDP will hit some magical number that you think might miraculously take place, in China.

The point is that in your article many months ago, you stated very clearly your arguments regarding whether or not China would overtake the US as measured by overall GDP.

But, NO WHERE in this article did you mention the energy constraints which might influence the progression from China now to China in 2025. And, as most people seem to know, cheap energy is probably the single greatest factor in predicting growth.

Naming oneself as a NitWit, is a very good idea. At least no one else can call one too much less, easily. But, being a professor from Columbia, then wouldn’t it be better to take in a lot more real world information, as much as possible, and thereby make this blog even that much better than it already is?

Forget about the moral constraints. Better think about the science based physical constraints before making prognostications.

Any good smart social social scientist worth his salt such as you can read the literature. And come to a very smart judgment about so many things.

Forget the ideology. Try to cut through to the facts. And try to read as much as you can OUTSIDE your field of interest. To make your blog that much better.

Of course, the bottom line is that the readers of this blog just want to know what is going to happen next in China, before anyone else knows. Or. At least they want to know what is your best guess. We wish you knew. And we keep reading, mistakenly thinking, that we might find out.

KEEP WRITING.

But, also, keep looking out for new input from energy investment bankers such as Matthew Simmons that just might be able to teach you a thing, or two.

And, also, pls keep in mind that there are some real world researchers who are doing great things and doing great research studying real world issues that might positively influence your blog.

It is not in the interest of China to undermine the dollar. Why should they want to do it when they are holding a massive amount of assets in dollars term? The dollar will undermine itself over time when the US keep printing money. The dollar has only a perceived value and soon it is not worth the paper it is printed on and when that happened a Big Mac will cost $50.00. The US will then be exporting super inflation to the rest of the world.