USA backing for world currency stuns markets
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US backing for world currency stuns markets
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.
By Ambrose Evans-Pritchard
March 27, 2009 "The Telegraph" -- - 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 because investors consider the United States the strongest economy in the world with the most stable 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.http://www.telegraph.co.uk/finance/economics/
Russia wants to start debate on new reserve currency at G20
http://en.rian.ru/russia/20090318/120627306.html
China central bank governor suggests creating super-sovereign reserve currency
http://news.xinhuanet.com/english/2009-03/24/
Zhou Xiaochuan: Reform the International Monetary SystemIMF chief: Currency debate 'absolutely legitimate'UN proposes new global currency reservehttp://news.theage.com.au/breaking
Obama dismisses need for new international reserve currency
http://en.rian.ru/world/20090325/120720928.html
Obama Administration Defends US Dollar as Global Reserve Currency
http://www.voanews.com/english/2009-03-26-voa62.cfm?rss=topstories
EU says dollar secure as reserve currency
http://www.iht.com/articles/ap/2009/03/24/business/
US and Europe Reject Chinese Bid for New Global Currency
http://www.dw-world.de/dw/article/0,,4126017,00.html
U.S. Vows To Sustain Dollar's Dominance
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Well..it would make it easier for them to print the money to pay off their debts no ?
But that's just guess work on my part.
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China and Russia call for new currency: US rejects
http://www.globalcrisisnews.com/general/china
Dollar as world’s only reserve currency is illegal, Kazakhstan president says
http://english.pravda.ru/world/ussr/10-03-2009/107209-dollar_illegal-0
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The dollar's days may be numbered
By Associate Editor David Stevenson Mar 27, 2009
If you've been on holiday abroad recently, you'll be all too aware how expensive everything has become if you're paying in pounds.
Sadly for travellers, and also for importers, our national economic woes mean there's little sign of sterling recovering much in the near future. But the pound's not the only currency with problems.
With various parts of the eurozone near-bankrupt, the euro is under pressure, while Japan's recession means the yen doesn't look too hot either. And the Swiss franc – a traditional safe haven – has been deliberately crushed by the Swiss central bank, keen to prevent deflation.
Still, there's always the dollar. It might be massively indebted, but America is still the place where everyone runs to put their money when things start looking shaky. The dollar is still the world's reserve currency.
But perhaps not for much longer...
Sterling's in a mess right now - but so is the rest of the world
Unless you have a secret stash of dollars or euros you can press into service when the need arises, travelling outside the UK these days has become awfully pricey. The currency swap shops will give you less than $1.40 per £1, while you're lucky if you can beat 1:1 on euros.
While exchange rates may improve again one day, you only have to scan the horrendous headlines about our economy to realise this isn't likely to be any time soon.
But sterling's main saving grace is that the world is in a mess too, particularly the US. Right now, the dollar is the world's "reserve currency", which means that many other countries hold large amounts of dollars in their foreign exchange reserves – 65% of the total, at the last count. That means the Americans are in pole position to set the global economic agenda – effectively they run the racetrack.
But the trouble is, as we discuss in MoneyWeek magazine this week (Can America's latest rescue package really work?, if you're not already a subscriber, get your first three issues free here), the US has gone on a spending spree like no other in history. That means they're running up debt like no tomorrow - $11 trillion and counting, if you include social security obligations. In fact, if you want to see something really scary, check out the US National Debt Clock and keep hitting the 'refresh' button. The numbers just ratchet up while you watch in horror.
This means humungous levels of US borrowing, and probably lots more new money being minted, for years to come. That poses some big question marks about the greenback's long-term future.
Are the dollar's days numbered?
So anyone who holds US dollars could be forgiven for getting a bit twitchy about the value of their holdings. And the Chinese have started the ball rolling. Central bank governor Zhou Xiaochuan has called for a "super-sovereign reserve currency" that would be run by the International Monetary Fund (IMF). Russia, Brazil and India have backed the idea as well.
Now people have been predicting the end of the dollar's status as reserve currency for years. But it's easier said than done. Having the global reserve currency is the main reason that America has been able to rack up the debts it has. Losing that position might be healthier for the global economy in the long run, but it wouldn't be a very comfortable adjustment for the US.
And then there's the status issue. If you no longer control the world's main "go-to" currency, it rather suggests you've lost your position as the world's most important country. Hence the long tradition of Presidents and Treasury Secretaries pretending that the US has a "strong dollar" policy, regardless of what's actually happening on the ground.
So it's no wonder that markets were shocked when on Wednesday, US Treasury Secretary Tim Geithner said that America is "quite open" to the Chinese proposals, sending the dollar plunging. "This apparent policy shift amounts to an earthquake in geo-finance", says David Bloom at HSBC, according to The Telegraph.
Dramatic stuff. It didn't take very long for Mr Geithner to "clarify" what he meant, i.e. that there was no policy change and that "the dollar would remain the world's dominant currency" – though that's not quite the same thing – but by then the cat was out of the bag. "If there's a lesson from today", says Chris Turner at ING Capital Markets, "it's that the dollar's on thin ice and any loose talk will be quickly punished."
How would a global currency work?
So how would a global super-currency work? At the moment the IMF runs on Special Drawing Rights, which are a basket of the world's major currencies. "The IMF would be groomed as the planet's central bank", says The Telegraph's Ambrose Evans-Pritchard, "and the SDRs would gradually become an accepted means of payment - call it the 'globo'."
This could have some benefits. It would mean a new monetary start for a world racked by deflation, and maybe inflation again soon. The managers – the IMF - would be independent of national governments. That means countries wouldn't be able to 'inflate' their way out of debt by de-basing their currencies.
But as the problems of the eurozone show, monetary union is easier said than done. Trying to set pan-eurozone interest rates is hard enough. Doing it on a global basis would be nigh-on impossible.
And more to the point, any basket of currencies used to back the 'globo' would include a far smaller number of dollars than central banks currently hold in their reserves. That would mean a big plunge for the dollar and serious upheaval for the global financial system.
So you won't be able to swap your pounds for globos any time soon. "This is obviously not something that's going to happen for quite a long time", says Morris Goldstein at the Peterson Institute. But Geithner's 'slip' means the door has been opened to a future without the dollar. As Goldstein puts it, "the crisis does raise a lot of fundamental issues, and the reserve currency is one of them".
China holds almost 30% of the world's entire dollar reserves, says Mr Bloom, so "what they say matters". If the dollar starts dropping in earnest, and the Chinese really get fed up with losing so much money, don't bet on some form of the world super-currency not happening.
And in the meantime, we've said it before, but we'll say it again – gold looks like the only currency worth having.
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ahhhhh!!! yawn,...me go sleep liao...!!!
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It was a slip of the tongue for "Treasury Secretary Timothy Geithner"
He did not even bother to pay any attention to what the Chinese Central banker said!
""I haven't read the governor proposal ... As I understand his proposal, it is a proposal designed to increase the use of IMF special drawing rights, and we are actually quite open to that suggestion." " (http://www.channelnewsasia.com/stories/afp_world_business/view/417824/1/.html)
He thought it was about "increase the use of IMF special drawing rights" and he was "quite open to that suggestion"
He did not know, because he couldn't be bothered to read what the Chinese Central banker said, that it was a suggestion to replace the US Dollars as the world's reserve currency with the IMF SDR.
The suggestion is so ridiculous, he did not even bother to read what the Chinese central governor said.... (see http://www.newsintercom.org/?p=663 March 24th, 2009, which was published before Geithner made the slip up, Posted: 26 March 2009 0553 hrs) the CNA link provided 3 paragraphs up)
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Once world Currency is out.
USA is fuck up. and China/Russia will dominate the market
cause usa$$ will be nothing but piece of paper
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Originally posted by youyayu:
Once world Currency is out.
USA is fuck up. and China/Russia will dominate the market
cause usa$$ will be nothing but piece of paper
There is talk of using gold as a standard again. If that happens, the reasons why gold was abandoned will just resurface with it.
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Originally posted by AndrewPKYap:
There is talk of using gold as a standard again. If that happens, the reasons why gold was abandoned will just resurface with it.
how much is this plate of chicken rice?
it will be 2 gold thank you.
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Originally posted by youyayu:
how much is this plate of chicken rice?
it will be 2 gold thank you.
2 gold???!!! wah lao, eat gold ar?
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G20 - Make or break?
Engdahl: The question in the EU is - will they go down with the dollar system or find their own way?
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the world is screwed