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USD/CHF is still staying in tight range above 1.1158 today and at this point, intraday outlook remains neutral as sideway consolidation from there might still be in progress. Another rise cannot be ruled out but fall from 1.1963 is still expected to resume as long as 1.1456 resistance holds. Below…

New Zealand dollar ran the show in Asian session following another day of rally in Asian stock markets today with Nikkei climbing another 1.8% to 8,636. The Kiwi is additionally boosted after RBNZ denied an emergency meeting and had no response to IMF’s call for further easing. Indeed, the Kiwi…

China ready to become the next global economic superpower

After World War II, the economically powerful nations got together at Bretton Woods to try and hammer out a monetary system. What they decided on, basically, was to make the U.S. dollar the world’s reserve currency. The dollar would be tied to gold, and the other currencies would be tied — within a fixed rate of exchange — to the dollar. This system came to an end in 1971 when Nixon effectively took the dollar off its by then tenuous tie to gold. 

But the U.S. dollar remains the most popular currency in the world — the world’s reserve currency. And the currency by which commodities (such as gold and oil) are priced.

China ready for a new global reserve currency

China wants all of that to change. With U.S. assets becoming less valuable almost by the day, and China poised to become the world’s next economic superpower, it is no surprise that Chinese officials are pushing against the U.S. dollar as the reserve currency of choice. GFT’s Kathy Lien describes the fight between the U.S. and China over the dollar in FX360:

Last week, China’s Premier expressed their concern about their holdings of U.S. debt. Yesterday, Central Bank Governor Zhou released a paper calling for the IMF to create a “super-sovereign reserve currency,” a proposal that is backed by countries like Russia. Although part of their concern can be attributed to the weakness of the U.S. dollar, China’s comments are probably more politically motivated. Having grown into an economic powerhouse over the past 3 decades, they now have greater ambitions for the Chinese Yuan. At the same time, they want to reduce the global significance of the U.S. dollar and in turn, put themselves on a more level playing field.

China is asking for a reserve currency that is based on shares held by IMF members. These would be called special drawing rights. These rights would be used to effectively supplant the U.S. dollar as a major reserve currency. International trade, commodity pricing and accounting would all be based on this reserve currency.

As one might expect, U.S. leaders are not very fond of the idea. And it is unlikely that China can force it through anytime soon. However, the precarious position of the U.S. economy, and the dollar’s likely fundamental weakness in the future, could lead to adoption of some sort of similar system down the road. At the very least, China is likely looking to use the Chinese yuan to supplant the U.S. dollar as a reserve currency.

China is rising. And, with China as our biggest debt holder, the U.S. is in no position to make any demands. While other nations (well, other than Russia and a few others) are unlikely to accept such a drastic step right now, China could be trying to pave the way for the future.

See Also

• More on China’s Currency Plans
  China wants to get rid of the U.S. dollar as the world’s reserve currency
• World Currencies in Forex Trading
  Forex news, information and analysis

During early European deals on Wednesday, the Swiss franc showed mixed trading against its major counterparts. While the franc gained against the pound, it recovered from a 2-day low against the dollar and the yen. On the other hand, the franc eased from a 13-day high against the euro.

Wednesday, the euro recovered from multi-day lows against its most major counterparts despite a report showed that Germany’s business confidence fell to a record low in March. The euro recovered from a 13-day low against the franc, 6-day low against the dollar and a 2-day low against the yen. Meanwhile, the euro remained higher against the pound today.

In early European deals on Wednesday, the British pound extended its Asian session’s downtrend against other major currencies.

As discussed before, an intraday top should be in place at 1.4778 in GBP/USD. Intraday outlook is turned neutral for the moment and some deeper pull back could be seen towards 4 hours 55 EMA (now at 1.4370). However, note that rise from 1.3654 is still expected to continue as…

USD/CHF dips sharply in early US session but after all it’s holding above 1.1158 low. Intraday remains neutral and consolidation might extend further. However, note that while another recovery cannot be ruled out, fall from 1.1963 is still expected to resume as long as 1.1456 resistance holds. Below 1.1158 will…

Intraday outlook in USD/JPY remains neutral for the moment and some more consolidation could be still be seen. However, note that rise from 93.53 is still expected to continue as long as 96.57 minor support holds. As discussed before, rise from there is tentatively treated as resumption of whole rally…

EUR/USD’s break of 1.3582 minor resistance suggests that retreat from 1.3737 might have completed at 1.3417 already. Intraday bias if flipped back to the upside for 1.3737 first and then next key resistance zone of 1.3822 and 61.8% retracement of 1.4719 to 1.2456 at 1.3855. On the downside, though, below…