Last Wednesday China officially began to move away from the U.S. Dollar as it's reserve currency when it purchased $50 billion in bonds issued by the International Monetary Fund.
The global organization said the note purchase agreement "offers China a safe investment instrument," and is part of a broader plan to help the fund weather the economic downturn.
...Chinese officials have previously held up the IMF as a possible source for a world reserve currency to supplement or replace the dominant role of the U.S. dollar.
China's action was prompted by increasing concern over rising deficits in the U.S.
..."If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," he said.
China's reserves are more than – $2 trillion, the world's largest.
"Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets," he added.
Ironically the IMF’s currency, which undermines the strength of the dollar, is backed by a $100 billion contribution from the U.S., inserted by Senate Democrats into the war authorization bill.
The Senate blocked a Republican bid to strip a $100 billion contribution to the International Monetary Fund from President Obama's emergency war-spending bill, as the legislation moved toward passage.
..."Enough is enough," said Republican Sen. Jim DeMint of South Carolina, the sponsor of the amendment. "This ... is more than we spend on education every year, more than we spend on veterans' benefits, more than we spend on transportation."
He called it "reckless spending" and said the program, while well-intentioned, was run by an IMF board that includes hostile governments such as Iran.
The amendment was beat back by...Foreign Relations Committee Chairman Sen. John Kerry, Massachusetts Democrat.
The majority of loans issued by the IMF go to central Europe, where Obama is courting countries such as Turkey to offset Russian influence.
The United States has signaled it would be willing to contribute $100 billion to the IMF, of which a substantial portion would go to Central Europe. (Of the current loans given by the IMF, roughly 80% have gone to the struggling economies in Central Europe.)
...It is becoming clear that Obama is playing a deeper game. A couple of weeks before the meetings, when it had become obvious that the Europeans were not going to bend on the issues that concerned the United States, Obama scheduled a trip to Turkey. During the EU meetings in Prague, Obama vigorously supported the application for EU membership, which several members are blocking on grounds of concerns over human rights and the role of the military in Turkey.
...The US Congress for several years has threatened to pass a resolution condemning Turkish genocide against Armenians. The Turks are extraordinarily sensitive to this charge, and passage would have meant a break with the United States. Last week, they publicly began to discuss an agreement with the Armenians, including diplomatic recognition, which essentially disarms the danger from any US resolution on genocide. Although an actual agreement hasn't been signed just yet, anticipation is building on all sides.
The Turkish opening to Armenia has potentially significant implications for the balance of power in the Caucasus. The August 2008 Russo-Georgian war created an unstable situation in an area of vital importance to Russia. Russian troops remain deployed, and NATO has called for their withdrawal from the breakaway Georgian regions of South Ossetia and Abkhazia. There are Russian troops in Armenia, meaning Russia has Georgia surrounded. In addition, there is talk of an alternative natural gas pipeline network from Azerbaijan to Europe.
Turkey is the key to all of this. If Ankara collaborates with Russia, Georgia's position is precarious and Azerbaijan's route to Europe is blocked. If it cooperates with the United States and also manages to reach a stable treaty with Armenia under US auspices, the Russian position in the Caucasus is weakened and an alternative route for natural gas to Europe opens up, decreasing Russian leverage against Europe.
During a visit to Turkey in April, Obama laid out his strategy of capitulation to the muslim world.
A "turning point," a "fresh breeze" -- even a "light in the darkness." Arabs and Muslims have been charmed by President Barack Obama's first venture into the Islamic world.
Obama's visit to Turkey was full of gestures calculated at showing he is a friend to Muslims, like his headliner sound bite that the U.S will never be "at war with Islam" and his mention of the Muslims in his family. Even throwaway lines like a comment that he had to wrap up a town-hall meeting with Turkish students "before the call to prayer" showed he was no stranger to Muslims' way of life.
He even went as far as to call himself a Muslim-American.
I also want to be clear that America's relationship with the Muslim community, the Muslim world, cannot, and will not, just be based upon opposition to terrorism. We seek broader engagement based on mutual interest and mutual respect. We will listen carefully, we will bridge misunderstandings, and we will seek common ground. We will be respectful, even when we do not agree. We will convey our deep appreciation for the Islamic faith, which has done so much over the centuries to shape the world -- including in my own country. The United States has been enriched by Muslim Americans. Many other Americans have Muslims in their families or have lived in a Muslim-majority country -- I know, because I am one of them.