Hot on the heels of the news that rating agencies Fitch, Moody’s and Standard and Poor’s lowered the U.S. credit rating from AAA to AA+, comes now the insult to the injury with China now spewing venom on the Obama administration and confidently expressing that the world needs another reserve currency that can replace the dollar!
The U.S. dollar is the world reserve currency and the U.S. debt became the collateral for supporting global finance. Now of course critics are raging loud!
China owns US government bonds worth a whopping $ 1.1 trillion, while China’s foreign exchange reserve exceeds $ 3.2 trillion. Experts estimate that about 60-70% of that is in dollar-denominated assets. Now American authorities are being sharply criticized for their bungling big time in preventing a decline in their credit rating.
China’s state news agency, Xinhua, emphasizes that no longer can US “loan themselves the amount necessary to get out of the financial mess they have created in the first place…The world should be looking for a new reserve currency to replace dollar.”
Japan, which is the second largest creditor to the U.S., and South Korea, the two prominent partners to the U.S. have taken this statement rather calmly. A representative of the Japanese authorities has said on terms of anonymity that, “The credibility of the US government T-Bills and the investment in them will not diminish after this event.”
Russia, however, seems to have taken the greatest impact of this crisis. Though Moscow is pretending to have no reason to worry, fall in trading by 3% soon after it started shows the obvious effects. Moreover, due to exchange rate differences the National Fund in Russia has lost greater than 108 billion rubles.
Now it remains to be seen how the cookie crumbles for the rest of the world with it literally baking in the U.S. financial crisis!