Sorry to post two things in one day, but since I posted about China's currency proposal Geithner has responded about it. Again, very interesting and important knowing that Bretton Woods 2.5 is happening in a few weeks. Here it is:

NEW YORK (Reuters) – Treasury Secretary Timothy Geithner said on Wednesday the U.S. dollar is still the world's reserve currency and will remain so for a long time, though he also expressed openess to expanded use of an IMF currency basket.
Geithner, when asked during an audience question-and-answer period following a speech in New York, whether he foresaw a change in the dollar's global role, he said, "No, I do not."

"The dollar remains the world's dominant reserve currency and I think that's likely to continue for a long period of time."

He also said, "as a country, we will do what's necessary to make sure we're sustaining confidence in our financial markets and in this economy's long-term fundamentals."

The comments came shortly after Geithner, in response to another question, said he was "quite open" to a recent Chinese suggestion to move toward greater use of a IMF-created global currency basket comprising dollar, euros, sterling and yen.

Zhou Xiaochuan, China's central bank governor, earlier this month said the world should consider the IMF's Special Drawing Rights basket as a super-sovereign reserve currency.
Geithner said he hadn't read Zhou's proposal, but added, "as I understand it, it's a proposal designed to increase the use of the IMF's Special Drawing Rights. I am actually quite open to that suggestion."

He also said he had "tremendous respect" for Zhou. China's foreign exchange reserves are the largest in the world at nearly $2 trillion and China is the biggest holder of U.S. Treasury debt.

The U.S. dollar initially fell against the euro on Geithner's remarks regarding China's SDR proposal but pared those losses after the U.S. treasury secretary reiterated his faith in the dollar as world reserve currency.

"Geithner admits to not having read China's proposal, and President Obama's comments on the dollar yesterday -- no need for another reserve currency and that the dollar was fundamentally strong -- was more of the underlying signal," said Marc Chandler, senior currency strategist at Brown Brothers Harriman in New York.

(Reporting by Pedro Nicolaci da Costa)

Found on http://news.yahoo.com/s/nm/20090325/bs_nm/us_financial_usa_geithner;_ylt=AnPmD2xZsAYriXkqxeu3pdp2wPIE;_ylu=X3oDMTJzcW4za2VjBGFzc2V0A25tLzIwMDkwMzI1L3VzX2ZpbmFuY2lhbF91c2FfZ2VpdGhuZXIEY3BvcwM1BHBvcwM1BHNlYwN5bl90b3Bfc3RvcmllcwRzbGsDZ2VpdGhuZXJzYXlz on March 25, 2009.

This was a fascinating read and I recommend it to you. Necessity and difficulty is the birthplace of innovation and ingenuity. In the world financial markets, there is much difficulty and the necessity to find a better way. It is good to know at the very least one of the innovations being pushed. Something very similar was pushed in the original Bretton Woods - it may be gaining traction and was proposed at the recent Bretton-Woods. I know too little of this to say whether it is good or not - but being aware is the first step in making those judgements.

BEIJING – China is calling for a new global currency to replace the dominant dollar, showing a growing assertiveness on revamping the world economy ahead of next week's London summit on the financial crisis.

The surprise proposal by Beijing's central bank governor reflects unease about its vast holdings of U.S. government bonds and adds to Chinese pressure to overhaul a global financial system dominated by the dollar and Western governments. Both the United States and the European Union brushed off the idea.

The world economic crisis shows the "inherent vulnerabilities and systemic risks in the existing international monetary system," Gov. Zhou Xiaochuan said in an essay released Monday by the bank. He recommended creating a currency made up a basket of global currencies and controlled by the International Monetary Fund and said it would help "to achieve the objective of safeguarding global economic and financial stability."

Zhou did not mention the dollar by name. But in an unusual step, the essay was published in both Chinese and English, making clear it was meant for a foreign audience.

China has long been uneasy about relying on the dollar for the bulk of its trade and to store foreign reserves. Premier Wen Jiabao publicly appealed to Washington this month to avoid any response to the crisis that might weaken the dollar and the value of Beijing's estimated $1 trillion in Treasuries and other U.S. government debt.

For decades, the dollar has been the world's most widely used currency. Many governments hold a large portion of their reserves in dollars. Crude oil and many commodities are priced in dollars. Business deals around the world are done in dollars.

But the financial crisis has highlighted how America's economic problems — and by extension the dollar — can wreak havoc on nations around the world. China is in a bind. To keep the value of its currency steady — some say undervalued — the Chinese government has to recycle its huge trade surpluses, and the biggest, most liquid option for investing them is U.S. government debt.

To better insulate countries from the ills of one country or one currency, Zhou said the IMF should create a "reserve currency" based on shares in the body held by its 185 member nations, known as special drawing rights, or SDRs.

He said it also should be used for trade, pricing commodities and accounting, not just government finance.

President Barack Obama described China's proposal as unnecessary during a prime-time news conference Tuesday.

"I don't believe that there's a need for a global currency," Obama said.

The president also pointed to the current strength of American money. "The reason the dollar is strong right now is because investors consider the United States the strongest economy in the world with the most stable political system in the world."

Earlier in the day, both U.S. Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke took similar positions at a congressional hearing. They were asked by Rep. Michele Bachmann, R-Minn., if they would "categorically renounce the United States moving away from the dollar and going to a global currency," and both said they would.

And the European Union's top economy official said the dollar's role as the international reserve currency is secure despite China's proposal.

"Everybody agrees also that the present world reserve currency, the dollar, is there and will continue to be there for a long period of time," EU Commissioner Joaquin Almunia said Tuesday after a meeting of the European Commission.

Zhou also called for changing how SDRs are valued. Currently, they are based on the value of four currencies — the dollar, euro, yen and British pound. "The basket of currencies forming the basis for SDR valuation should be expanded to include currencies of all major economies," he wrote.

Beijing has been unusually bold in recent months in expressing concern about Washington's financial management and pushing for global economic changes. That reflects both its relative financial health and growing concern that increased globalization means missteps abroad could harm its own economy.

Zhou's comments are also part of China's longstanding push to reform the IMF, World Bank and global financial system to give greater voice to China and other developing economies — another theme that will be heard from China, Brazil, Russia and India at the summit of Group of 20 major economies next week.

"Overdue reforms should give proper representation to and increase the say of the emerging and developing economies," Yi Xianrong, a researcher with the Institute of Economics and Finances at the Chinese Academy of Social Sciences, a government think-tank, wrote in the government newspaper China Daily.

"Proper representation and a bigger voice for the developing countries are the need of the hour. For instance, being the world's third-largest economy and the largest foreign reserves holder, China should get its due place in the monetary body."

Another idea Yi raised was that the U.S. and Europe should give up their traditional privileges of appointing the heads of the World Bank and the IMF.

The idea of a creating a new global reserve currency isn't new. But analysts say the proposal isn't likely to gain much traction because it faces major obstacles. It would require acceptance from nations that have long used the dollar and hold huge stockpiles of the U.S. currency.

"There has been for decades talk about creating an international reserve currency and it has never really progressed," said Michael Pettis, a finance professor at Peking University's Guanghua School of Management.

Managing such a currency would require balancing the contradictory needs of countries with high and low growth or with trade surpluses or deficits, Pettis said. He said the 16 European nations that use the euro have faced "huge difficulties" in managing monetary policy even though their economies are similar.

"It's hard for me to imagine how it's going to be easier for the world to have a common currency for trade," he said.




Found at http://news.yahoo.com/s/ap/as_china_global_currency;_ylt=AsRGullY0NX5bnWrdQuewGnZn414 on March 25, 2009.

One of the common themes I often hear when discussing our oversized and bloated federal government is "State's Rights." That theme almost kept us from becoming the United States and almost broke our Union during the Civil War. It was the battle cry of the South in the "War Against Northern Aggression" or the "War for State's Rights." It is the battle cry of many even today - especially among the very conservative. I do not fault them for that belief. However, they should think twice about ever promoting such a thing.

Governments were instituted by God for the benefit of man. Their proper role is to ensure the safety and domestic tranquility of its citizens, support interstate commerce, and support the general welfare of the People.

Do you believe that?

The goverment has the powers to enact laws that are necessary and proper to ensure that it can fulfill the responsibilities and powers delegated to it (Article 1 of the US Constitution).

Do you believe that?

The survival of the Government at the local, state and Federal levels is tied to the survival of the financial system. Without a functioning financial system public credit would be gone, the money system destroyed and the whole system of our country would be gone thus leaving our country open to foreign invasions, turmoil from within and a cessation of all public and therefore private services.

Do you agree with that?

If you believe these things then you should, in some way, support government intervention in the free market when it's lack of involvement would mean the destruction of the system that supports our government and therefore it would destroy our government as well.

If you believe that, then you must ask yourself, "What level of intervention then is necessary and proper?" Was and is the financial system at that level of risk where it required and requires the government's involvement to keep it from falling apart? Also, at what point does Government involvement increase the likelihood of its destruction?

We must do our research and answer that question for ourselves.