China should not only care about the safety of the dollar assets it holds， but also consider how to make preparations for its yuan to become an international reserve currency against a weakening US dollar.

Surprisingly， the US debt default crisis this time did not end with the American two parties’ consensus to raise debt ceiling， but usher in a shocking climax when the farce was expected to end: the international rating agency SP lowered the US longterm sovereign credit rating from AAA to AA+ and the credit rating outlook to“negative.”

During this special and sensitive period， the Eurozone， the world’s biggest economy and the stabilizing force of world economy， is turbulent and the world economy is confronted with the most severe time in the aftermath of the 2008 financial cri- sis. Credit downgrade decisively by SP is exercising huge psychological hurt on both the US and the global economy.

In my view， SP’s credit downgrade on the US this time will impact the global politics and economy at least in three facets:

First， SP’s degrading is vetoing the US economic performance in terms of unemployment rate and economic growth. We find that during the first quarter， the US merely registered an economic growth of 1.8% and even 1.3% in Q2， while the unemployment rate remained above 9.2%， far above last year’s expectation. Furthermore， as the Federal Reserve has no better means to stimulate economic recovery except a third round of quantitative easing， the likelihood for the US economic revival in a short run seems to be slim.

Second， SP’s credit downgrade is vetoing the US ability to pay off its debts. The unprecedented downgrade this time signals a default crisis underlying in the US national debt， which undoubtedly sends off a good warning to the holders of the US national debts. The public may not help questioning: with a lower credit rating， whether the US can still resort to the economic development model featuring debtled consumption and whether it can cheaply campaign global financing.

Third， since the outbreak of the financial crisis， the US has been struggling to step out of slump with bleak economic prospects. SP’s credit downgrade on the US exactly at this moment obviously signaled its disappointment about the US debt delivery and to some degree， this also means that the US era is ending.

Should this signal the end of the US-dominated era， whether China will embrace a valuable historic opportunity or a severe challenge will be a subject of great significance on our agenda. For sure， diversification of global reserve currency is an irresistible historical trend， but the ending of the US era does not mean that China will necessarily replace the US as the global power with its yuan to be the next international reserve currency.

Therefore， regarding SP’s credit downgrade， China should not only care about the dollar assets it holds， but also consider how to make preparations for its yuan to become an international reserve currency against a weakening US dollar. Otherwise， the downfall of the US will pose a challenge to China owing to a turbulent international financial background rather than providing the best opportunity for China’s reemerging.

(Author: Economist from Beijing News)