The second step would be for the PBC to perform dollar-for-yuan foreign exchange reserve swaps with African central banks, with China offering to split the seigniorage (the difference between the face value of currency and the cost to produce it) with the African nations as a form of foreign aid.
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Goldman's economists suggest that 61% of a properly diversified foreign-exchange reserve would be in dollars, with 32% in euros and 7% in yen.
There, according to the Chinese Foreign Ministry, the leaders discussed the currency swap and foreign-exchange reserve pool ideas with their Russian, Indian and Brazilian peers.
Regardless of the amount of difficulty involved, the big four emerging markets plus South Africa said earlier this week they were considering setting up a foreign-exchange reserve pool and a currency-swap arrangement in an effort to avoid any credit crisis stemming from the advanced economies.
One reason China is setting up its sovereign wealth fund now is that huge trade surpluses and a vast reserve of foreign exchange mean it simply has too much cash to absorb into its own economy, and capital controls keep it from investing in liquid assets like American T-bills.
In other words, they tighten with reserve requirements and ease with open market operations in the foreign exchange market.
Now China has much of its foreign exchange in U.S. treasury bonds, part of a total reserve worth over a trillion dollars.
But Dino Kos, a former chief of markets at the Federal Reserve Bank of New York who now works for Portales Partners, a research firm, notes that the yuan does not meet one of the most basic requirements of a reserve currency: other countries cannot use it to intervene in foreign-exchange markets because it is not freely convertible.
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Further confirmation that the U.S. dollar is gradually losing its reserve status came today from an International Monetary Fund report on global holdings of foreign exchange reserves by central banks.
FORBES: Dollar's Share Of Global Reserves Continues To Slide, Reserve Status Questioned
In early 1933, the federal government (not the Federal Reserve) declared a bank holiday prohibiting banks from paying out gold or dealing in foreign exchange.
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