Following release of an essay by People’s Bank of China governor Zhou Xiaochuan calling for a new international reserve currency to replace the U.S. dollar, U.S. Treasury Secretary Timothy Geithner sent the value of the dollar reeling when he appeared to express support for this idea. Geithner has since backtracked and clarified his meaning. The Washington Post reports on comments Geithner made at the Council on Foreign Relations:
Treasury Secretary Timothy F. Geithner said Wednesday that the United States would do whatever it takes to make sure the dollar would remain the world’s dominant reserve currency, clarifying comments he had made earlier in the day that had caused the greenback to fall against major currencies.
“I think the dollar remains the world’s dominant reserve currency,” Geithner said during a question-and-answer session at the Council on Foreign Relations here. “I think that’s likely to continue for a long period of time. And as a country, we will do what’s necessary to make sure we’re sustaining confidence in our financial markets, and in the productive capacity of this economy and in our long-term fundamentals.”
The comments by People’s Bank of China Gov. Zhou Xiaochuan are setting a framework for talks on how to resolve the huge trade imbalances between China and the U.S., analysts said.
In the past, China has been blamed for its large trade surplus by officials in the U.S. and elsewhere, who see the yuan as undervalued.
“China has effectively set the agenda for the G20 leaders’ summit,” wrote SocGen economists in a note Tuesday, referring to next week’s meeting of finance chiefs from the Group of 20 leading economies in London.
The U.N. panel dealing with the global financial crisis has supported opening the idea of a new global reserve currency up for debate.
See also “The Chinese Yuan: The Next World Currency?” from the Wall Street Journal blog; “A global ‘super currency’ to replace the buck? No, but . . .” from the Los Angeles Times blog; and