Treasury Secretary Timothy Geithner sent the dollar tumbling with comments re China’s Overhaul

[KoKo]

Geithner Remarks on IMF Currency Roil Foreign-Exchange Market ...SEE BELOW to his COMMENTS at G-20......
WHERE DOES HE STAND? Says One thing and THEN, ANOTHER?

By Rebecca Christie

March 26 (Bloomberg) -- Treasury Secretary Timothy Geithner sent the dollar tumbling with comments about China’s ideas for overhauling the global monetary system, only to drive it back up by affirming that it should remain the world’s reserve currency.

Geithner was asked at a Council on Foreign Relations event in New York yesterday about People’s Bank of China Governor Zhou Xiaochuan’s call for a new international reserve currency. He said while he had not read Zhou’s proposal, he understood it as a plan “designed to increase the use of the IMF’s special drawing rights. And we’re actually quite open to that.”

The dollar slid as much as 1.3 percent against the euro within 10 minutes of news accounts of Geithner’s remarks. It recouped much of the loss about 15 minutes later, when Geithner then predicted no change in the U.S. currency’s role. The dollar was down 0.22 percent at $1.3553 per euro as of 12:13 p.m. in Tokyo.

The episode highlights investors’ sensitivity to any weakening role for the dollar as power shifts toward a wider group of developed and emerging nations, said James McCormick, Citigroup Inc.’s global head of foreign-exchange and local- markets strategy. It was “important” that China’s proposal came in the run-up to a Group of 20 summit next week, he added.

Share of Reserves

“The G-20 is gaining relative power versus the G-7 and we will feel that and see that for some time to come,” London- based McCormick said. One key focus for markets will be any change in sentiment toward the dollar, which makes up about two- thirds of world central banks’ foreign-exchange reserves, he said.

Geithner will attend the summit of the G-20, which groups the largest developing and emerging countries, April 2 in London along with President Barack Obama. The smaller Group of Seven had since the 1970s been the main forum for leaders of nations with the biggest economies.

After the dollar slumped in the aftermath of Geithner’s first remarks, Roger Altman, who worked with Geithner as deputy Treasury secretary in the Clinton administration, asked him whether he wanted to “clarify” his comments.

“I’d like to ask one final question, in effect on behalf of the market,” said Altman, founder of Evercore Partners Inc. “Let me ask the question this way. Do you see any change over the foreseeable future in the basic role of the dollar as the world’s key reserve currency?”

‘Strong Dollar’

Geithner responded: “I think the dollar remains the world’s dominant reserve currency.” In an interview with CNBC broadcast after the event, the Treasury chief said that a “strong dollar” is in “America’s interest.”

In his earlier answer, Geithner said increased use of SDRs should be “rather evolutionary, building on the current architecture, rather than moving us to global monetary union.” SDRs are a unit of account at the IMF used for member countries’ reserves with the fund.

Geithner’s remarks don’t indicate Geithner favors moving to a system with the SDR as a reserve currency, strategist Lee Hardman at Bank of Tokyo-Mitsubishi Ltd. wrote in a note.

“That was the big concern amongst the confusion,” London- based Hardman said. “A move to an SDR-linked system away from the dollar would naturally lead to a reduction in the dollar’s share of global reserves.”

‘Confidence’ in U.S.

Geithner, a former Treasury undersecretary for international affairs and president of the Federal Reserve Bank of New York, which carries out U.S. interventions in currency markets, also said that “we will do what’s necessary to make sure we’re sustaining confidence in our financial markets.”

Geithner and Fed Chairman Ben S. Bernanke both told lawmakers on March 24 that they expected the dollar to remain the most important global currency. Obama said at a news conference the same day that “the dollar is extraordinarily strong” because investors are confident in the ability of the U.S. to lead a worldwide recovery, and also rejected calls for a new global currency.

China is the largest foreign holder of U.S. Treasuries, and Premier Wen Jiabao earlier this month expressed concern about the value of its investment. Central bank governor Zhou this week advocated a “super-sovereign reserve currency” that’s disconnected from any individual nation.

Zhou said, in an essay posted on the PBOC’s Web site, that the International Monetary Fund’s special drawing rights offer “light in the tunnel for the reform of the international monetary system.” He said the SDR has yet to be “put into full play due to limitations on its allocation and the scope of its uses.”

McCormick at Citigroup said it was a concern that Geithner said he hadn’t read Zhou’s comments. “If I’m running the Treasury I would want to have been briefed on that.”

Much More]at........http://www.bloomberg.com/apps/news?sid=aSZTgpL48TZQ&pid=20601068#

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* SEPTEMBER 5, 2009, 12:08 P.M. ET


G20: US Geithner:World Expects Dollar To Stay Reserve Currency

By Tom Barkley

Of DOW JONES NEWSWIRES

LONDON (Dow Jones)--U.S. Treasury Secretary Timothy Geithner said Saturday the world expects the dollar to remain the major reserve currency.

When asked about proposals by countries like China and Russia to find an alternative to the dollar as a reserve currency, he said, "We expect, and the world expects, the dollar to be the principal reserve currency of the global economy for a long period of time."

He also said there was broad agreement among his Group of 20 counterparts on restricting bank compensation practices.

Downplaying divisions over the issue of tackling bankers' bonuses, Geithner said there was a consensus on the "core principles" around compensation practices and denied that some countries were proposing a cap on bonuses.

"I don't believe any country or any government is actually proposing to set actual limits globally on compensation amounts," he said during a press conference following the G20 meeting.

-By Tom Barkley, Dow Jones Newswires; 202-862-9275; [email protected]
http://online.wsj.com/article/BT-CO-20090905-701212.html