ÿþ<html> <head> <meta http-equiv="content-type" content="text/html;charset=iso-8859-1"> <title>OnlineColumnist&reg;.com: Putin Punishes Georgia</title> <meta name="generator" content="Adobe GoLive 4"> <style type="text/css"> .style2 { font-size: large; font-weight: bold; font-family: Arial; } .style3 { height: 58px; } .MsoNormal {} .style4 { font-size: x-large; font-weight: bold; } </style> </head> <body bgcolor="white" vlink="black"> <center> <table cool width="624" height="2719" border="0" cellpadding="0" cellspacing="0" gridx="16" showgridx gridy="16" showgridy> <tr height="79"> <td width="133" height="118" rowspan="2" valign="top" align="left" xpos="0"><a href="aboutdiscobolos.html"><img height="110" width="62" src="images/discobolos.logo.transp.gif" border="0"></a></td> <td width="7" height="118" rowspan="2"></td> <td width="482" height="79" colspan="2" valign="top" align="left" xpos="140"><img height="75" width="450" src="images/banner.GIF"></td> <td width="1" height="118" rowspan="2"></td> <td width="1" height="79"><spacer type="block" width="1" height="79"></td> </tr> <tr height="39"> <td width="182" height="39"></td> <td width="300" height="39" valign="top" align="left" xpos="322"><a href="aboutdiscobolos.html"><img height="14" width="267" src="images/divisionofNEW.GIF" border="0"></a></td> <td width="1" height="39"><spacer type="block" width="1" height="39"></td> </tr> <tr> <td width="624" colspan="6" valign="top" align="left" xpos="0" class="style3"> <table border="0" width="100%" bgcolor="black" cellspacing="0"> <tr> <td> <table border="0" width="100%" bgcolor="#99ffcc" cellspacing="0" cellpadding="4"> <tr> <td align="center"> <div align="left"> <a href="index.html"><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong>HOME</strong></font></a><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong> &#149; <a href="articlesindex.html">ARTICLES</a> &#149; <a href="books.html">BOOKS</a> &#149; <a href="teflon.html">THE </a><a href="teflon.html">TEFLON</a><a href="teflon.html"> REPORT</a> &#149; <a href="mailto:letters@onlinecolumnist.com">REACTIONS</a> &#149; <a href="aboutdiscobolos.html">ABOUT DISCOBOLOS</a></strong></font></div> </td> </tr> </table> </td> </tr> </table> </td> </tr> <tr height="2"> <td width="133" height="2">&nbsp;</td> <td width="489" height="2576" colspan="3" rowspan="2" align="left" xpos="133" content valign="top" csheight="2573"> <p class="style2">Reserve Currency or Bust</p> <p><b><font face="Arial,Geneva,Helvetica">by John M. Curtis</font></b><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"><b><a href="books.html"><br> </a></b></font><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"><b>(310) 204-8700</b></font></p> <p><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"><i>Copyright March 25, 2009<br>All Rights Reserved. </i></font>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </p> <p class="MsoNormal"> &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <span style="mso-tab-count:1">&nbsp; </span><span class="style4">T</span>hreatening to strip the mighty U.S. dollar of its reserve currency status, China and Russia have suggested that the International Monetary Fund consider forming a new global reserve currency based on world s strongest currencies.<span style="mso-spacerun: yes">&nbsp; </span>China holds nearly $739.6 billion in U.S. treasuries, attesting to its symbiotic relationship with the planet s most conspicuous consumers.<span style="mso-spacerun: yes">&nbsp; </span>It s been almost four years since China severed its ties to the U.S. dollar and floated the yuan.<span style="mso-spacerun: yes">&nbsp; </span>Since floating the yuan, the dollar has lost about 30% of its value to the yuan, devaluing Chinese investments in U.S. treasuries.<span style="mso-spacerun: yes">&nbsp; </span> When the G-20 meet in London April 2, Peoples Bank of China Gov. Zhou Xiaochuan plans to ask to replace the dollar as the world reserve currency.<span style="mso-spacerun: yes">&nbsp; </span>China expressed concerns about growing U.S. debt further eroding the dollar, chipping away at China s investments in U.S. treasuries.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Speaking at nationally televised press conference, President Barack Obama stopped short of proclaiming the U.S. economy on the rebound.<span style="mso-spacerun: yes">&nbsp; </span>He spoke confidently about the strength of the U.S. dollar, rejecting the idea of a new global currency.<span style="mso-spacerun: yes">&nbsp; </span> I don t believe there is a need for a global currency, said Obama, realizing that China and Russia were dead set on pushing for a new global reserve currency.<span style="mso-spacerun: yes">&nbsp; </span>Both Federal Reserve Board Chairman Ben S. Bernanke and Treasury Secretary Timothy Geithner also reject the idea of replacing the U.S. dollar.<span style="mso-spacerun: yes">&nbsp; </span>China currently holds more than $1 trillion in reserve currency.<span style="mso-spacerun: yes">&nbsp; </span> Pushing for a new reserve currency would cause chaos at a time of global economic upheaval.<span style="mso-spacerun: yes">&nbsp; </span> China appears to be growing more and more assertive over its rights, said currency analyst Andrew Busch of BMO Capital Markets, seeing trouble at upcoming the G-20. </p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>European officials, commanding the most clout at the G-20, don t want to rock the boat during the current economic downturn.<span style="mso-spacerun: yes">&nbsp;&nbsp; </span>EU Economic and Monetary Affairs Commissioner Juaquin Almunia predicted the dollar would remain as the world s reserve currency.<span style="mso-spacerun: yes">&nbsp; </span> The relative economic powers are changing, he told the European Parliament in Strasbourg, France, acknowledging the euro has gained ground as a global reserve currency.<span style="mso-spacerun: yes">&nbsp; </span> But I don t expect major structural changes in the role that the dollar plays today as the reserve currency, signaling that Obama &amp; Co. have their work cut out for them convincing world leaders that the U.S. economy is on the mend.<span style="mso-spacerun: yes">&nbsp; </span>Perceptions of economic chaos have hurt the U.S. dollar, causing a spike in oil prices.<span style="mso-spacerun: yes">&nbsp; </span>Bernanke and Geithner will make a strong case to EU central bankers to loosen monetary policy to help ease the global credit crunch.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Economists see problems with switching global reserve currencies.<span style="mso-spacerun: yes">&nbsp; </span> The problem is that there would be winners and losers and no one wants to be the loser, said Richard Kelly, senior economist at Toronto-Dominion Bank.<span style="mso-spacerun: yes">&nbsp; </span>  It would be very hard to get a compromise, signaling that changing the dollar would cost countries considerable wealth.<span style="mso-spacerun: yes">&nbsp; </span>Since the end of WW II, the dollar has been the global reserve currency used for pricing and trading major commodities like petroleum, gold and silver.<span style="mso-spacerun: yes">&nbsp; </span>At the end of WW II the Deutsche mark had collapsed with the British Pound Sterling and French Franc losing much its value.<span style="mso-spacerun: yes">&nbsp; </span>Only the dollar survived the ravages of war, in part because of the strong U.S. industrial base.<span style="mso-spacerun: yes">&nbsp; </span>With much of U.S. manufacturing shifting to Asia, especially China, the dollar no longer enjoys the same clout.<span style="mso-spacerun: yes">&nbsp; </span>Restarting U.S. manufacturing would be a positive first step.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Putting the onus of creating a reserve currency on the IMF is also problematic, considering the U.S. makes the biggest contribution.<span style="mso-spacerun: yes">&nbsp; </span>When the IMF goes broke or requires cash it goes to the U.S. with cup in hand.<span style="mso-spacerun: yes">&nbsp; </span>Changing to a new world currency would force all countries currently holding U.S. dollars to convert, potentially causing staggering losses.<span style="mso-spacerun: yes">&nbsp; </span>Since the U.S. is the world s biggest donor of foreign aid, many U.N. countries could also face losses.<span style="mso-spacerun: yes">&nbsp; </span> I sure there would be reluctance in the U.S. to support this, said University of Toronto economics professor Paul Mason, believing the U.S. holds the most sway at the G-20.<span style="mso-spacerun: yes">&nbsp; </span>China and Russia would like a new global currency because few countries buy or sell yuan or ruble-denominated debt.<span style="mso-spacerun: yes">&nbsp; </span>Rubles are currently valued at only 2% of the U.S. dollar or 14.6% of the yuan, a real problem when it comes to attracting investors.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <![endif]>When Obama and Geithner arrive in London, they need to show the kind of leadership the world expects.<span style="mso-spacerun: yes">&nbsp; </span> Watching chaos in U.S. financial and stock markets only adds to China and Russia s argument for new global reserve currency.<span style="mso-spacerun: yes">&nbsp; </span>No IMF world currency would hold the same clout as currency based on a real Gross Domestic Product.<span style="mso-spacerun: yes">&nbsp; </span>Combining currencies might help China or Russia sell some of its debt but offers no assurances to other industrialized powers.<span style="mso-spacerun: yes">&nbsp; </span>Russia s economy is hopelessly dependent on petro-dollars, depressed because of the current recession.<span style="mso-spacerun: yes">&nbsp; </span>While China has certainly made economic progress under capitalistic reforms, it still struggles with widespread poverty and overpopulation.<span style="mso-spacerun: yes">&nbsp; </span>Its economy is inseparably tied to U.S. conspicuous consumption.<span style="mso-spacerun: yes">&nbsp; </span>Creating a new reserve currency would only weaken the U.S. dollar and hurt China s bottom line.</p> <p><b><u>About the Author</u></b><br> </p> <p><b>John M. Curtis </b>writes politically neutral commentary analyzing spin in national and global news. He&#x2019;s editor of OnlineColumnist.com and author of <a href="books.html">Dodging The Bullet</a> and <a href="books.html">Operation Charisma</a>.<br> </p> <p></p> </td> <td width="1" height="2576" rowspan="2"></td> <td width="1" height="2"><spacer type="block" width="1" height="2"></td> </tr> <tr height="2574"> <td width="133" height="2574" valign="top" align="left" xpos="0"><img height="172" width="111" src="images/johninframe3.jpg"></td> <td width="1" height="2574"><spacer type="block" width="1" height="2574"></td> </tr> <tr height="1" cntrlrow> <td width="133" height="1"><spacer type="block" width="133" height="1"></td> <td width="7" height="1"><spacer type="block" width="7" height="1"></td> <td width="182" height="1"><spacer type="block" width="182" height="1"></td> <td width="300" height="1"><spacer type="block" width="300" height="1"></td> <td width="1" height="1"><spacer type="block" width="1" height="1"></td> <td width="1" height="1"></td> </tr> </table> <table border="0" cellpadding="0" cellspacing="2" width="597"> <tr> <td><font size="1" face="Arial,Geneva,Helvetica"> <hr noshade size="1"> </font><a href="index.html"><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong>Home</strong></font></a><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong> || <a href="articlesindex.html">Articles</a> || <a href="books.html">Books</a> || <a href="teflon.html">The Teflon Report</a> || <a href="mailto:letters@onlinecolumnist.com">Reactions</a> || <a href="aboutdiscobolos.html">About Discobolos</a></strong></font> <div align="left"> <p><font size="1" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">This site designed, developed and hosted by the experts at</font><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"> <a href="http://www.cmeonline.net" target="_blank"><img height="30" width="138" src="images/cmelogoANIM.gif" border="0" align="absmiddle"></a></font></p> </div> <p><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">&copy;1999-2005 <a href="aboutdiscobolos.html">Discobolos Consulting Services, Inc.</a><br> (310) 204-8300<br> All Rights Reserved. </font></td> </tr> </table> </center> </body> </html>