Comments by PBOC governor Zhou Xiaochuan have gotten a lot of press over the past couple of days. China is not happy that they are stuck holding a lot of dollars, and frustrated that there continues to be no alternative.

That’s life. The dollar continues to be the world’s reserve currency, and that ain’t changing anytime soon.

So it’s not surprising that Zhou Xiaochuan would like to see a new world order, where a new reserve currency supplants the dollar. Sounds great, but this is mostly wishful thinking.

This is perhaps a revolutionary idea, but if anything, the whole discussion is more academic (read theoretical) than anything else (from the New York Times):

In a paper released Monday, Zhou Xiaochuan, governor of the People’s Bank of China, said a new currency reserve system controlled by the International Monetary Fund could prove more stable and economically viable.

A new system is necessary, he said, because the global economic crisis has revealed the “inherent vulnerabilities and systemic risks in the existing international monetary system.”

Note that the reason for all the nervousness is fear of dollar inflation, which would be a huge hit on the value of China’s assets. As the U.S. is printing money like a banana republic these days, the concern seems justified:

“Chinese are quite concerned that the large U.S. government deficits will eventually lead to inflation, which will erode the purchasing power of the dollar-denominated financial assets which they hold,” Mr. [Nicholas] Lardy said. “It is a legitimate concern.”

OK, now that we have all that out of the way, it turns out that some moronic folks in the press are taking advantage of this sensitive issue to fear monger. Matt Drudge, who somehow makes a living putting together a page with hyperlinks (hey, at least I write comments), has a ginormous headline in red text (the guy isn’t subtle, and the straight text format leaves few formatting options available) about China dumping dollars. Now that’s what I call responsible journalism.

Blake at the FP Passport blog explains:

You may have seen that Matt Drudge has a screaming headline up right now, BEIJING TO PITCH NEW GLOBAL CURRENCY; DUMP DOLLAR.” (Drudge links to a muuh more carefully worded Financial Times story.)

This strikes me as a significant moment, but let’s hang on a second before we lose our heads.

The story, also reported by the Wall Street Journal, is based on this rather mildly worded speech by Zhou Xiaochuan, the head of China’s central bank.

Read the entire post to discover how slimy and misleading Drudge is.

Now, normally I wouldn’t care so much about this. However, there are few things as sensitive as the foreign currency markets, and putting crap out there on the Internets can really make a difference (note what recently happened to CDE at China Briefing).

Knowing that the Washington, D.C. press corps is infatuated with Matt Drudge, I fear that this story will get blown out of proportion. Soon the U.S. cable news shows will be talking about how the Chinese are selling all their dollars.