China Demands Currency Reform, France Backs Debate

Posted by Ray on July 9, 2009 under cnbc, Main, The Federal Reserve | Be the First to Comment

This is major news. You can forget China’s talk on supporting the dollar as the reserve currency. It is clear that they are saying on thing and doing another so this may mean they are going to send us a message, probably through a treasury boycott. What is surprising, kind of, is France is backing them on this statement.

You have to ask yourself if you blame them? The dollar has slipped in the last few years so all those treasuries central banks bought are worth less to them now. Why would they wish to continue to lose money? The long-term slide of the dollar is clear and will continue, based on the technicals and fundamentals.

We are stuck, there is nothing the Fed can do to strengthen our currency at this point. Well, that is not 100% true, they can raise interest rates, but that would crush our economy. We have too much debt and we are going to issue more and without higher interest rates the dollar will slide downwards.

There was only 2 ways the US could get out of this debt anyhow. They could be honest and default, not make interest payments or they could print their way out. They chose option 2 which is a huge problem. Now we will have a deep recession, may be a depression, with higher prices. This is nuts and a major problem for us.

Here is the CNBC story:

China called on Thursday for reform of the reserve currency system at a meeting of world leaders in one of its most direct attacks on the dollar’s global dominance.

Chinese State Councilor Dai Bingguo did not specifically name the dollar at talks between the Group of Eight rich nations and G5 emerging powers, but he was unequivocal in calling for the world to diversify the reserve currency system and aim at relatively stable exchange rates.

France also unexpectedly called for a currency discussion and moving toward a “multimonetary” system, though Britain warned any debate should be reserved for the long term to avoid destabilizing markets in the midst of a global recession.

China’s ideas for changing the system had previously been mentioned in reports by its central bank, but had never been voiced in a speech by such a high-ranking political leader.

“We should have a better system for reserve currency issuance and regulation so that we can maintain relative stability of major reserve currencies’ exchange rates and promote a diversified and rational international reserve currency system,” Dai told the summit in Italy, according to a statement read by Foreign Ministry spokesman Ma Zhaoxu.

Dai made his statement to a meeting including British Prime Minister Gordon Brown, U.S. President Barack Obama and the leaders of Japan and the European Union, whose currencies are often held as part of countries’ foreign exchange reserves.

There is no question on whether the comments represented those of of China’s top leadership, the spokesman said.

“China’s position on reserve currencies has had different interpretations, but I can tell you that what I have just quoted is the most authoritative standpoint of the Chinese government,” he said.