March 26, 2009
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.
[efoods]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.