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A few weeks ago, five Chinese vessels, two of them fishing trawlers, surrounded a US naval ship, the Impeccable, off Hainan island in the South China Sea. When the US survey ship responded with fire hoses, the Chinese crewmen stripped down to their underwear and-according to some reports-bared their bottoms.The slightly surreal stand-off, which drew a sharp protest from Washington,was carefully calibrated.Though it fell well short of a military exchange, it nevertheless sent a message that Beijing was not prepared to tolerate routine US spying missions in waters it considers its own.In the more cerebral world of monetary policy, Zhou Xiaochuan, China’s central bank governor, has sent a carefully calibrated signal of his own. While he stopped short of baring his bottom, he published a paper, neatly timed to appear just before the Group of 20 developed and emerging nations summit, in which he proposed replacing the dollar with an international reserve currency. In a detailed and serious analysis, he suggested expanding the scope and function of special drawing rights, a unit of account used by the International Monetary Fund.Mr Zhou’s proposal did not emerge from thin air. In recent weeks Beijing has been vocal about its concerns over the US dollar, a currency that it fears could be debased by ever more wanton printing to rescue a worn-out economy. Wen Jiabao, China’s premier, referring to the fact that 70 per cent of China’s almost $2,000bn (€1,500bn, £1,400bn) in foreign reserves is held in dollars, said: “To be honest, I am a little bit worried. I request the US to maintain its good credit, to honour its promises and to guarantee the safety of China’s assets.”Beijing has simultaneously been taking cautious steps to make its currency more internationally relevant. This week, Mr Zhou signed a Rmb70bn ($10bn, €7.7bn, £7.1bn) currency swap deal with Argentina, designed to allow the Latin American nation to settle some trade bills in renminbi. It followed swaps with South Korea, Malaysia, Indonesia, Hong Kong and Belarus....By David Pilling
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