China calls for new global reserve currency

China, the US’s biggest creditor, reacted to the downgrade of America’s credit rating by saying it showed that US should “cure its addiction to debts” and called for a new stable global reserve currency instead of the dollar.

­"The US government has to come to terms with the painful fact that the good old days when it could just borrow its way out of messes of its own making are finally gone," China's official Xinhua news agency declared in a commentary.

The Standard & Poor's credit agency cut the US long-term rating from AAA to AA+ on Friday over concerns about the nation's climbing debt and budget deficit problems.

“China has every right now to demand the US address its structural debt problems and ensure the safety of China's dollar assets,” Xinhua news agency stated.

China is now calling for a new stable global reserve currency.

“International supervision over the issue of US dollars should be introduced and a new, stable and secured global reserve currency may also be an option to avert a catastrophe caused by any single country,” Xinhua wrote.

Concerns are also rising in Asia's third-largest economy, India, where the Finance Minister called the situation “grave.”

"We will have to analyze [the downgrade]. It will require some time,” Finance Minister Pranab Mukherjee told reporters in New Delhi.

It comes as Indian shares hit a 13-month intraday low on Friday due to US economic worries and the European debt crisis.

Asian markets plunged on Friday following carnage in US and EU markets amid fears of a double-dip global recession. And the dollar has yet to face the markets when they respond on Monday to the US credit rating downgrade by Standard and Poor’s.

The sell-off in Asia followed the biggest one-day points decline on Wall Street since the 2008 financial crisis.

Stocks in India and Japan have gone into nosedive as confidence built by America’s move to raise its debt ceiling on Tuesday ebbed away.

Asian observers of the American political scene have been unimpressed by the brinkmanship which delayed a resolution of the debt ceiling issue until the 11th hour. A number of Chinese newspapers went so far as to call the whole debacle immoral and irresponsible.

The US credit rating downgrade is expected to cause yet more worries in Asia, bringing anxieties over America’s financial health to a tipping point after all the other debates and decisions of the past week.

With the dollar hitting its lowest point in several years, a critical mass of opinion is building in Asia over whether it should continue to be used as a reserve currency.

Asia has a vested interest in what is going on in the United States as they hold three trillion dollars of US debt, so what happens in America clearly affects what happens in Asia greatly. If Americans do not have jobs, then they are not spending money on consumer goods – and in many cases that means Asian exports.

With confidence at a nadir in Asia now, the stock market meltdown comes as no great surprise to many analysts who predicted at the beginning of week that a slump was on the horizon.