A customer exchanges U.S. dollar notes at a bank in Beijing.
TEXT OF STORY
Kai Ryssdal: We've been paying for the bailout two different ways: by the Fed printing more money, and the Treasury Department selling more T-bills. The limitations of that strategy became clearer this morning thanks to the Chinese central bank -- a proposal to swap out the dollar as the global-reserve currency, and eventually replace it with something controlled by the International Monetary Fund.
Beijing holds more foreign reserves than any other country. American greenbacks make up more than half of its $2-trillion stash, and that makes them acutely aware of the value of a dollar. But it is still going to be difficult to change the currency status quo as Marketplace's Jeremy Hobson reports.
JEREMY HOBSON: The Chinese proposal comes just a week after Russia floated a similar idea. This morning, Republican Congresswoman Michele Bachmann asked Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner what they thought of it.
Rep. Michele Bachmann: Would you categorically renounce the United States moving away from the dollar and going to a global currency, as suggested this morning by China and also by Russia, Mr. Secretary?
Tim Geithner: I would yes.
Rep. Bachmann: You would categorically, and the Federal Reserve chair?
Ben Bernanke: I would also.
That's important because the U.S. can veto policy decisions at the IMF. Plus, says Marc Chandler, head of currency strategy at Brown Brothers Harriman.
MARC CHANDLER: Watch what the Chinese do. Not what they say. And here's what they've done. In the second half of last year, the Chinese increased their Treasury holdings by 38 percent.
Chandler and other currency strategists say China wants to flex its economic muscle. But to create a new global currency, China would have to talk other countries into using it. Good luck, says international economist Robert Scott at the Economic Policy Institute.
ROBERT SCOTT: There are hundreds of billions of dollars worth of $100 bills in circulation in places around the world like Russia and Kazakhstan, where these are the accepted forms of currency. So you'd have to replace all that currency, and that's not a trivial matter.
And experts say the dollar's success isn't just because of the economy it represents. There's a lot of military might backing that dollar too. That is something an international currency without a country behind it wouldn't have.
In New York, I'm Jeremy Hobson for Marketplace.