US Treasury Secretary Tim Geithner shocked global markets by revealing that Washington is “quite open” to Chinese proposals for the gradual development of a global reserve currency run by the International Monetary Fund.
The dollar plunged instantly against the euro, yen, and sterling as the comments flashed across trading screens. David Bloom, currency chief at HSBC, said the apparent policy shift amounts to an earthquake in geo-finance.
“The mere fact that the US Treasury Secretary is even entertaining thoughts that the dollar may cease being the anchor of the global monetary system has caused consternation,” he said.
Mr Geithner later qualified his remarks, insisting that the dollar would remain the “world’s dominant reserve currency … for a long period of time” but the seeds of doubt have been sown.
The markets appear baffled by the confused statements emanating from Washington. President Barack Obama told a new conference hours earlier that there was no threat to the reserve status of the dollar.
“I don’t believe that there is a need for a global currency. The reason the dollar is strong right now is political system in the world,” he said.
The Chinese proposal, outlined this week by central bank governor Zhou Xiaochuan, calls for a “super-sovereign reserve currency” under IMF management, turning the Fund into a sort of world central bank.
The idea is that the IMF should activate its dormant powers to issue Special Drawing Rights. These SDRs would expand their role over time, becoming a “widely-accepted means of payments”.
Mr Bloom said that any switch towards use of SDRs has direct implications for the currency markets. At the moment, 65pc of the world’s $6.8 trillion stash of foreign reserves is held in dollars. But the dollar makes up just 42pc of the basket weighting of SDRs. So any SDR purchase under current rules must favour the euro, yen and sterling.
Beijing has the backing of Russia and a clutch of emerging powers in Asia and Latin America. Economists have toyed with such schemes before but the issue has vaulted to the top of the political agenda as creditor states around the world takes fright at the extreme measures now being adopted by the Federal Reserve, especially the decision to buy US government debt directly with printed money.
Mr Bloom said the US is discovering that the sensitivities of creditors cannot be ignored. “China holds almost 30pc of the world’s entire reserves. What they say matters,” he said.
Mr Geithner’s friendly comments about the SDR plan seem intended to soothe Chinese feelings after a spat in January over alleged currency manipulation by Beijing, but he will now have to explain his own categorical assurance to Congress on Tuesday that he would not countenance any moves towards a world currency.
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Your article about HR 875, I could not locate a place to comment on it. I am dissapointed at that article. I see what you are doing with it, trying to remain 100% objective. But come on Sakerfa, the lobbyists DO write their own legislation and then have their whore congressperson rubber stamp it. Its too late in the game to remain 100% objective with these NWO sell-outs. Don’t do it man. Don’t go soft like this. These people lie and steal for a living these “representatives” and the scum-bag PACs Monsanto sends in to sex’em up and bribe them down. All this is is Monsanto damage control because they saw the grassroots movement forming against this bill and OTHERS you must remember. HR 875 is not an isolated incident. They are pushing draconian legislation every day. We have to push back. I am asking you to take another look at the big picture and realize that you are falling for an old trick the politicians use when the people start fkin up their plans.
Oh and the Monsanto quote “he did some contract work for us 10 years ago”. BULLHSIT ! Like a politician would just work for a megacorp like Monsanto and then “thats all, never called them again, only worked for them once”. Come on man. Yeah and Bill Clinton didn’t inhale right? Thats not how politicians operate. They dont make connections that huge and then fail to exploit them. The blogs are going to eat this alive.