Chinese President Criticizes Fed Reserve, Questions U.S. Dollar

by Jonathon M. Seidl

Chinese President Criticizes Fed Reserve, Questions U.S. Dollar: "

Ahead of a visit to Washington this week, Chinese President Hu Jintao criticized the Federal Reserve for dollar devaluation and called the current international currency system — which features the U.S. dollar — a “product of the past.”

The Wall Street Journal and Washington Post submitted questions to Jintao and received responses to seven of those questions. The responses included critical comments about U.S. economic policy.

From the WSJ:

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 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.

As the dollar loses value internationally, Jintao also took the opportunity to attack the currency’s supremacy in foreign exchange. “The current international currency system is the product of the past,” he told the WSJ.

China’s recent actions solidify that sentiment. At the end of 2010, the country struck a deal with Russia that dismissed the U.S. dollar as the medium of exchange between the two countries.

China’s concerns over the U.S. dollar are understandable. According to the WSJ, China’s holdings of dollar reserves reached $2.85 trillion at the end of 2010.

Read the entire article from the WSJ.

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