RCM Comments: With all the noise about bailouts and payouts and market rallies, I’m afraid you may be distracted from perhaps the most important story brewing. We have highlighted in these pages more than once over the last few months the importance of the movement coming from China to impose its will on the world financial community. Please read these two stories closely. A move away from the US$ as the reserve currency will be destructive for the value of the US$ and US treasury bonds prices as well as bullish for gold prices.

China takes aim at dollar – WSJ
The Wall Street Journal reports China called for the creation of a new currency to eventually replace the dollar as the world’s standard, proposing a sweeping overhaul of global finance that reflects developing nations’ growing unhappiness with the U.S. role in the world economy. The unusual proposal, made by central bank governor Zhou Xiaochuan in an essay released Monday in Beijing, is part of China’s increasingly assertive approach to shaping the global response to the financial crisis. Mr. Zhou’s proposal comes amid preparations for a summit of the world’s industrial and developing nations, the Group of 20, in London next week. At past such meetings, developed nations have criticized China’s economic and currency policies. This time, China is on the offensive, backed by other emerging economies such as Russia in making clear they want a global economic order less dominated by the U.S. and other wealthy nations. However, the technical and political hurdles to implementing China’s recommendation are enormous, so even if backed by other nations, the proposal is unlikely to change the dollar’s role in the short term. Central banks around the world hold more U.S. dollars and dollar securities than they do assets denominated in any other individual foreign currency. Such reserves can be used to stabilize the value of the central banks’ domestic currencies. John Lipsky, the IMF’s deputy managing director, said the Chinese proposal should be treated seriously. “It reflects officials’ concerns about improving the stability of the financial system,” he said. “It’s interesting because of China’s unique position, and because the governor put it in a measured and considered way.”

Official says China to continue buying U.S. debt : AP reports China will continue buying U.S. government debt while paying close attention to possible fluctuations in the value of those assets, a vice governor of Beijing’s central bank said Monday. Investing in U.S. Treasury bills is ”an important component part of China’s foreign currency reserve investments,” People’s Bank of China Vice Governor Hu Xiaolian said at a news conference on Monday. ”So as an important component we are naturally relatively concerned with the safety and profitability of U.S. government bonds,” Hu said — a statement apparently aimed at concerns that rising debt to fund Washington’s stimulus package could spur inflation and weaken the dollar.