‘Developed economies spawning a currency crisis’

BEIJING – Rising sovereign debt levels in advanced economies are spawning a crisis that threatens to topple the dollar and other reserve currencies, a Chinese credit ratings agency warned Monday.

Dagong Global Credit Rating said developed economies were spawning a “currency crisis” by trying to prop up their economies through loose monetary policies following the 2008-2009 financial meltdown.

Dagong says it is an independent private company but its chairman has previously advised the Chinese government, which has the world’s largest foreign exchange reserves.

“In this stage, the world will more actively look for a new currency other than the US dollar, euro, Japanese yen and British pound to replace the current international currency system,” the report said.

The document did not mention the Chinese yuan as an alternative, but clearly suggested that China’s economic fundamentals and rising global influence mean the country is poised to play a leading role.

Dagong said that efforts by China and other “emerging creditor countries” to stimulate their own internal demand meant they were destined to play a leading role in safeguarding the global financial system.

“They will become the leading force to protect the stability of international credit,” the report said.

Decades of reform and economic growth have made China the world’s second-largest economy, but strict capital controls have kept its currency from playing a role much beyond the country’s shores.

That is gradually changing, however, as Beijing slowly loosens restrictions with the goal of increasing the yuan’s international role. Last year, China and Japan began direct trading of the yuan and yen.

In the latest example of the currency’s increasing internationalisation, the state-run China Daily newspaper reported that the Chicago Mercantile Exchange on Monday would begin offering deliverable offshore yuan futures in Hong Kong.

Dagong made headlines in August 2011 when it lowered its main rating for US sovereign debt after Congress passed new legislation to raise Washington’s debt ceiling.

The agency, which is far less prominent than long-established Western competitors including Moody’s, Fitch and Standard and Poor’s, has been working to further raise its profile.

In October, it announced that it was partnering with ratings agencies in the United States and Russia in a bid to break the dominance of major US agencies in assessing state and company debt.

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