Thursday, March 26, 2009

Geithner Statement Very Strong on New Reserve Currency

Treasury Secretary Geithner's comment re a plan to replace the dollar as a reserve currency was much stronger than reported by FT.

Here's what FT reported:

Mr Geithner told the Council for Foreign Relations that he had not studied the proposal by Chinese central bank governor Zhou Xiaochuan for greater use of Special Drawing Rights in international reserves, but said “we are quite open to that”.

Here's more of what Geithner said, via Ben Smith at Politico:

"I haven’t read the governor’s proposal. He’s a very thoughtful, very careful distinguished central banker. I generally find him sensible on every issue," Geithner said, saying that however his interpretation of the proposal was to increase the use of International Monetary Fund's special drawing rights -- shares in the body held by its members -- not creating a new currency in the literal sense.

"We’re actually quite open to that suggestion – you should see it as rather evolutionary rather building on the current architecture rather than moving us to global monetary union," he said.

"The only thing concrete I saw was expanding the use of the [special drawing rights]," Geithner said. "Anything he’s thinking about deserves some consideration.

And here is Smith on Altman bailing out Geithner:

UPDATE: Evidently sensing a gaffe, moderator Roger Altman told Geithner that it would be "useful" to return to the question, and asked if he foresaw a change in the dollar's centrality.

"I do not," Geithner said, adding several forceful promises, including, "We will do what's necessary to say we're sustaining confidence in our financial markets."
Either Geithner is totally clueless or the Administration has chosen planned confusion as a way to introduce the concept of a new reserve currency, since Obama, last night, expressed confidence in the dollar and said: "I don't believe that there's a need for a global currency." Notice, he did say no need for a "global currency" which is technically different from a new "reserve currency".

To further complicate matters, White House economic adviser Austan Goolsbee appeared on Wolf Blitzer's show yesterday. And although he did nothing to promote the idea of a new reserve currency, many interpreted his remarks as insufficiently forceful in knocking down the likelihood of a new reserve currency.

My own belief is that, as I have been reporting, something is brewing, but it is early stage. The Obama Administration is trying to figure a way to get the dialogue going without crashing the dollar. Their effort, par for the course, has resulted in their appearing as total bunglers.

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