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Geithner Flip-flopping on Global Currency   March 25th, 2009
First he's against it, next day he says he's open to it       

 
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Treasury Secretary Geithner has essentially taken both sides of the issue of a new global reserve currency over the course of two days. Yesterday he was against it. Today he's "open" to it.

On Tuesday, Geithner was reported as being against it:

Federal Reserve Board chairman Ben Bernanke and Treasury Secretary Timothy Geithner Tuesday flatly rejected a call earlier in the day from a senior Chinese official to drop the dollar as the world's key reserve currency.


Then today, Wednesday, Geithner seemed to change his position:

The dollar declined to session lows against the euro and yen after U.S. Treasury Secretary Timothy Geithner said he was open to considering a new global reserve currency... Geithner said he hasn't yet read China's proposal, but that he was open to considering expanding an SDR.

This contradicts comments he made Tuesday, when along with Federal Reserve Chairman Ben Bernanke, he denounced the idea.


From flatly rejecting dropping the dollar as the world's key reserve currency to being open to a new global reserve currency... That's about a 180 degree change in a major policy position in just 24 hours.

To be sure, this isn't like changing your opinion on whether you want a Milky Way or a Snickers bar. The economic and political consequences--both for the United States as a whole as well as all its citizens individually--of accepting China's proposal cannot be overstated. While I can understand why other countries might want to move away from the dollar as the major global reserve currency, I can't imagine why the U.S. would want to consider it.

It'll be interesting to see if his stance is clarified soon, because it seems difficult to understand how the U.S. Treasury Secretary can come out in favor and against the proposal over the course of a day.

Update About Eight Minutes Later: No sooner had I written the above than Secretary Geithner reportedly issued a clarification:

Treasury Secretary Timothy Geithner said Wednesday the U.S. dollar remains the main global reserve currency and he does not see a change in that status in the foreseeable future. Earlier this week, People's Bank of China Gov. Zhou Xiaochuan called for a new international reserve currency to replace the dollar. Speaking in New York, Geithner said that Zhou was "a sensible man" and that "everything he said deserves consideration." The dollar fell sharply after those remarks, prompting a clarification from Geithner.


I haven't seen a transcript of his clarification, but I'm not sure how this really clarifies his position. First he was against a global currency, then he was open to it, and now he's reaffirmed the dollar's position as the global reserve currency--though it wouldn't seem he's come out and said that he's against an alternative global reserve currency... he's only said he doesn't foresee a move away from the dollar any time soon.

Perhaps his clarification will require another clarification.

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