China and Russia are proposing a new world reserve currency to replace the dollar. It would be in essence a basket of all major currencies.

This is an old idea, but its recent reintroduction is thought to reflect unease with the US-triggered recession and the US's potentially inflationary response to that recession.

China's central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

In an essay posted on the People's Bank of China's website, Zhou Xiaochuan, the central bank's governor, said the goal would be to create a reserve currency "that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies".

"This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money," said Qu Hongbin, chief China economist for HSBC. . . .

"The outbreak of the [current] crisis and its spillover to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system," Mr Zhou wrote.

At first glance, it would seem that such a new currency would be very bad for the US, its dollar, and its staggering recent increases in debt.

Whether replacing the dollar as the reserve currency would be bad for the rest of the world is hard to say. Despite President Obama's being a strong internationalist, I doubt that he will be significantly more positive about the prospect of a new world currency than Geithner and Bernanke are -- and both of them are negative on the idea.

This possibility is yet one more reason why the US Treasury should be issuing lots of 30, 50, and 100-year bonds while interest rates are still low. And then we need to stop the Federal Reserve from buying them!