At $1.954 tn, as on March 31, 2009, China holds the world's largest foreign currency reserves. However, that is hardly comforting for a nation that has been growing almost in double digits for many years in the recent past, fueled by surging exports coupled with strong domestic demand. The reason: about 70% of its foreign reserves are in US dollar-denominated assets, which also include treasury securities. With the US announcing multi-billion dollar bailouts in order to revive its sagging economy and resurrect troubled corporates in the aftermath of the worst ever financial crisis since the Great Depression of the 1930s, the move has clearly irked China, which fears that this would ultimately lead to a depressed dollar and thus in turn erode its forex reserves. Beijing expressed its anguish by dubbing the (US) move as nothing but `reckless spending'.

However, what has alarmed the Obama Administration is now the call by China for creation of a new international currency to replace the Greenback. Zhou Xiaochuan, Governor, The People's Bank of China, said in a speech in March this year, "The (financial) crisis again calls for creative reform of the existing international monetary system towards an international reserve currency with a stable value, rule-based issuance and manageable supply, so as to achieve the objective of safeguarding global economic and financial stability."

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