Michele Bachmann to China: The buck stays here

The People's Republic yearns to dislodge the dollar from its supreme perch. But the congresswoman from Minnesota will not permit such ignominy. Who will prevail in this battle of superpowers?

Published March 31, 2009 7:40PM (EDT)

Michelle Bachmann's proposed constitutional amendment to prevent the U.S. from abandoning the dollar? Crazy, crazy, crazy ... like a fox. According to a new Rasmussen poll, 46 percent of Americans surveyed "would favor a bill to prevent the dollar from being replaced." The people have spoken: Don't mess with the greenback!

TalkingPointsMemo was correct to label its summary of this utterly unsurprising finding: "Poll: Americans Oppose Non-existent Threat of Replacing Dollar." The United States is not going to abandon the dollar, nor is it likely to lose its position as the world's reserve currency of choice any time soon.

Which is not to say that it shouldn't lose that status. The great advantage of having your own currency be the world's reserve currency is that when you run up debts with the rest of the world, you can just print more dollars to pay 'em off. This enables the United States to carry its immense budget and trade deficits. Convenient, but hardly prudent in the long term, no?

Now, I wouldn't want to recommend that drastic fiscal discipline be imposed on the United States in the middle of a terrible economic contraction, but in the long run, it might be a healthy thing if the U.S. couldn't just fall back on its magic reserve currency status to avoid having to get its books in order.

And what do you suppose the response would have been from the Americans surveyed by Rasmussen if the question asked had been: "Would you support moving from the dollar to a super-sovereign global reserve currency if that would restore fiscal discipline and balanced budgets to the United States government?" Call me crazy as a Bachmann, but framed thusly, I think there would be rousing support for dissing Uncle Sam's moolah.

However, let's make no mistake. China is dead serious in attempting to extricate itself from dependence on U.S. currency fluctuations. The financial press was abuzz on Tuesday over news that China and Argentina had agreed to a $10 billion "currency swap."

From the Associated Press:

Monday's agreement calls for China and Argentina to exchange 70 billion yuan, or $10 billion, of their currencies for use in trade and investment, eliminating the need for each other's companies to buy dollars to pay for transactions.

The AP's Joe McDonald called the move "the highest-profile move yet in a quiet campaign by Beijing to reduce reliance on the dollar by expanding the reach of its own tightly controlled yuan to Asia and Latin America."

It's going to be quite a long time, if ever, before the yuan, which is not currently traded on currency markets, replaces the dollar as the scrip of choice for foreign reserve accumulation. But who can deny the Eastern wisdom in this comment from Zuo Xiaolei, chief economist for Galaxy Securities in Beijing.

"How can China protect its own interests in the current economic situation?" asked Zuo. "You can't change the U.S., so you can only change yourself."

Indeed. The Buddha nods.

By Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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China Chinese Economy Globalization How The World Works Latin America Michele Bachmann