Reserve Bank governor Glenn Stevens has taken an important step in alerting the world to the major changes looming in global finance, which will have significant medium-term implications for our share and financial markets. It was fascinating that he chose New York and the world bankers to make his speech over the weekend.

Stevens does not embrace the HSBC forecasts that the Renminbi will become a major international trading currency by 2015 and one day may even become the international currency. But it is the logical conclusion from the trends he isolates and if the US dollar loses significant market share as an international currency its share and bond will be affected.

Stevens points out that China is in fact now the world’s largest saver with a savings rate of about 55% of GDP — one of the highest ever recorded. China’s gross national saving of $3.2 trillion exceeded that of the US and the euro area in 2010. China’s gross investment at $2.9 trillion last year is also the world’s largest. The gap between these two figures — about $300 billion — is China’s current account position — the extent to which China, in net terms, exports capital to the rest of the world.

To deal with this large volume of saving 12 of the world’s 100 largest banks, as measured by assets are Chinese. No other country has 12 banks in the top 100.

Despite the rapid increases in size of the Asian markets, most of the time it is changes in US or European markets that set the tone each day for the Australian and Asian financial markets — partly because of the role of the US dollar.

However, Stevens says that as the Asian region becomes more integrated economically, with an ever larger Chinese and Indian economic mass at the core, and as the accretion of Asian financial wealth assumes increasing global significance, Asia is likely to be a source of “shocks” for the global economy and financial system more often.

“I am not suggesting that Wall Street will dance exclusively to Shanghai’s tune. The US economy and financial system will remain very large and internationally important for the foreseeable future,” Stevens told the New Yorkers.

Stevens says US banks are well ahead of their European counterparts in cleaning up their problems. Asia’s banks did not have a solvency crisis and, if anything, “their problems are more likely to be those of exuberance”.

All this means that the world, not just Australia, should be watching what is happening to the Chinese economy. China is planning to lower its growth rate from about 10-11% to 7%. Given the speculation that has taken place that policy may well create China “shocks” especially as China does not have a clear economic control situation.

*This article first appeared on Business Spectator