At first we thought that it was rather unusual that the US Treasury Secretary, Geithner, would make a special trip to China. What were the reasons for his trip? The purpose of the mission became clear when Geithner announced that the dollar would remain as the world reserve currency. There had been a lot of scuttle but about replacing the dollar as the world reserve currency, but some of this has been put to rest with the support of Chinese backing.
As usual the Chinese remarks were guarded and a bit fuzzy. Guo Shuging, Chairman of China Construction Bank and former head of the country's foreign exchange administrator said: "In the short term, I don't think we can find another currency to replace the US dollar." He also said, "the US dollar is the main currency because their economy is number one in terms of competitiveness, in terms of innovation."
Mr. Guo went on to say that people worry about the dollar because of US current account deficits.The US has been running a current account deficit since the 1970's.
There was also a quid pro quo, a give and take between Chinese officials and Secretary Geithner. Mr. Geithner said the President Obama pledged to to lower the US fiscal deficit to about 3% of GDP, once the economy gets going again. He also asked China to make its currency more flexible.He further suggested that China spend more money on education and create a social safety net
China protested that its currency should be allowed to appreciate. But the kicker in the whole exchange was not stated but it was reported earlier that China is still buying US treasuries at a record rate, and thus helping to finance our huge budget deficit.
Meanwhile the US dollar has been falling for the past several weeks as the price of oil is moving sharply higher.
So overall, we could say that Secretary Geithner's trip was successful and laid to rest, at least for the time being, the question of the dollar as the world reserve currency.
Will the dollar go lower and oil go higher?
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Reader Comments (Page 1 of 1)
6-02-2009 @ 8:45PM
thedude said...
You have to wonder just how many concessions Geithner made to China , other than selling the Hummer brand to China at a cut rate discount price.
Obama is going to finish what Bill Clinton started - the complete sell off of the USA to foreign powers
6-03-2009 @ 9:30AM
Deep Blue said...
In Sports my friends we call this the dreaded "Vote of Confidence" !