Geithner Appears To Flip-Flop on Support for U.S. Dollar

By: Declan McCullagh
Topics: Banking

(AP Photo/Mark Lennihan)

Treasury Secretary Timothy Geithner's apparent openness to a non-dollar reserve currency roiled markets on Wednesday before he backtracked and said the dollar would maintain its current central role.

Geithner had said at a Council on Foreign Relations event that he was "quite open" to China's suggestion to displace the greenback with an "international reserve currency." China central bank governor Zhou Xiaochuan had called for a global currency to replace the dollar, perhaps a "reserve currency" from the International Monetary Fund.

The odd thing, though, is that Geithner expressed what appears to be the alternate view a day earlier.

During a congressional hearing Tuesday on Capitol Hill, Rep. Michele Bachmann, a Minnesota Republican asked this question to Geithner and Fed Chairman Ben Bernanke: "We've seen both China, Russia, Kazahistan make calls for an international monetary conversion to an international monetary standard as soon as the G20. And I'm wondering, would you categorically renounce the United States moving away from the dollar and going to a global currency as suggested this morning by China and also by Russia. Mr. Secretary?"

Both officials gave unambiguous answers. Geithner said, "I would, yes." Bernanke replied, "I would also." (See the video of the exchange.)

Then there was President Obama's press conference a few hours later. CBS News has posted the transcript, which captures the president saying -- also unambiguously -- "I don't believe that there's a need for a global currency."

All of which makes Geithner's comments a bit inexplicable. Zhou, the China central bank governor, had suggested that there were too many "inherent vulnerabilities and systemic risks in the existing international monetary system," and a new approach would help "to achieve the objective of safeguarding global economic and financial stability."

The spectacle of the U.S. treasury secretary appearing to talk down the dollar shocked financial markets. The U.K. Telegraph's Ambrose Evans-Pritchard wrote that "the dollar plunged instantly against the euro, yen, and sterling as the comments flashed across trading screens."

Geithner made those comments at an event moderated by former Treasury official Roger Altman, who gave him a chance to clarify his remarks. "The dollar remains the world's dominant reserve currency," Geithner said later. "I think that's likely to continue for a long period of time."

If the dollar loses its de facto reserve currency status -- perhaps as a result of the Federal Reserve printing too much money -- it would likely sink against other currencies, making imports and commodities like oil and metals more expensive for Americans to buy. And because China is the U.S. government's largest single creditor, it has more to say about this than just about anyone else.

Declan McCullagh is the chief political correspondent for CNET. Declan previously was a reporter for Time and the Washington bureau chief for Wired and wrote the Taking Liberties section and Other People's Money column for CBS News' Web site.
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by sjc_1 April 5, 2009 3:41 PM EDT: One of the latest chants on the Chinese internet is "get free of the dollar". There is a wide audience that wants to get rid of the U.S. dollar as a reserve currency. I think China will take a "bath" if they do and they will take even more losses later on trying to readjust. A fool and his money soon part.; Reply to this comment


by MorrisonBonpasse March 27, 2009 6:47 PM EDT: Treasury Secretary Geithner was correct the first time when he said he was "quite open" to considering the Chinese proposal for a new reserve currency.
China is correctly leading the way to a Single Global Currency, which necessariy will be managed by a Global
Central Bank within a Global Monetary Union. As China requests, this next global currency will not be the responsibility of just one country. This proposal is similar to the pending proposal from the U.N. Task Force on
Financial reform, let by Joseph Stiglitz. The U.S. should join that panel and China in urging the G20 to begin planning for a Single Global Currency.
The success of the euro shows that monetary union is the best way to ensure monetary stability. The primary problem with the euro and currencies of other monetary unions is that they still must co-exist within the international multi-currency system itself where the value of those common currencies must still fluctuate in value against each other.
With a Single Global Currency, there are no such fluctuations, by definition.
If 16 countries can use the same currency, why not 192?
In addition to eliminating currency fluctuations, the use of a Single Global Currency would eliminate the current foreign exchange trading expense of $400 billion annually, eliminate currency risk, eliminate current
account imbalances, eliminate the need for foreign exchange reserves (now totaling more than $3 trillion); and bring other benefits worth trillions, such as reducing the impact of global financial turmoil such as we are now experiencing.
The Single Global Currency Assn. (www.singleglobalcurrency.org)
promotes the implementation of a Single Global Currency by 2024, the 80th anniversary of the 1944 conference. That's only 15 years away.
The world is moving toward a Single Global Currency through the creation, expansion and merger of regional monetary unions. Another route is through international monetary conferences proposals and agreements,
such as were seen at Bretton Woods.
The challenge now is to reach that goal planfully, as soon as possible with as little cost and as few crises
as possible.
See the book, "The Single Global Currency - Common Cents for the World."
Morrison Bonpasse
Single Global Currency Assn.
Newcastle, Maine, United States; Reply to this comment


by PacificGatePost March 27, 2009 2:25 PM EDT: China is simply flexing its economic muscle before the G20 meeting.

http://pacificgatepost.blogspot.com/2009/03/chinas-weak-gambit-on-currency-shift.html

The U.S. Dollar is not about to be replaced, regardless what China's wishes might be.; Reply to this comment


by whosaid1 March 26, 2009 2:33 PM EDT: well, I'm not convinced that he's all that smart. We do know for a fact that he's a tax cheat.....if he wasn't smart enough to understand SIMPLE personal tax laws, why would anyone expect him to be smart enough to solve our country's problems?; Reply to this comment


by USAF Vet Dan March 26, 2009 2:01 PM EDT: Congress should call Geithner back in and explain why he obviously lied to them. But they won't... they are all part of the problem.; Reply to this comment


by DefendLiberty March 26, 2009 1:22 PM EDT: This guy is very smart, but seems to lack the ability to speak in public. They should shutter him in a back room and put him to work fixing the GOP economic mess. Let someone who can clearly explain policy take the lead.; Reply to this comment