China getting worried about the strength of the US Dollar

China has renewed its call for the creation of a super-sovereign currency to reduce the US dollar's domination of the world's monetary system. It is believed they want the Special Drawing Right, the International Monetary Fund's unit of account, to eventually displace the dollar as the principal reserve currency.

In its annual financial stability report, China's central bank did not mention the dollar by name but said it was a serious defect that one currency should tower over all others.

'An international monetary system dominated by a single sovereign currency has intensified the concentration of risk and the spread of the crisis,' the People's Bank of China said.

In a veiled call for the US not to erode the value of the dollar through excessively loose monetary and fiscal policies, the PBOC urged closer supervision of those countries that issue the main reserve currencies.

China is no doubt getting worried about the $1.95 trillion in official currency reserves it has in US dollars. Any further big US budgetary and monetary stimuli may well generate inflation, in turn lowering the purchasing power of the US dollar and handing Beijing big losses on its large portfolio of dollar-denominated bonds.