US backing for world currency stuns markets
US Treasury Secretary Tim Geithner shocked global markets by revealing that Washington is “quite open” to Chinese proposals for the gradual development of a global reserve currency run by the International Monetary Fund.
By Ambrose Evans-Pritchard 6:05PM GMT 25 Mar 2009
The dollar plunged instantly against the euro, yen, and sterling as the comments flashed across trading screens. David Bloom, currency chief at HSBC, said the apparent policy shift amounts to an earthquake in geo-finance.
“The mere fact that the US Treasury Secretary is even entertaining thoughts that the dollar may cease being the anchor of the global monetary system has caused consternation,” he said.
Mr Geithner later qualified his remarks, insisting that the dollar would remain the “world’s dominant reserve currency … for a long period of time” but the seeds of doubt have been sown.
The markets appear baffled by the confused statements emanating from Washington. President Barack Obama told a new conference hours earlier that there was no threat to the reserve status of the dollar.
“I don’t believe that there is a need for a global currency. 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,” he said.
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The Chinese proposal, outlined this week by central bank governor Zhou Xiaochuan, calls for a “super-sovereign reserve currency” under IMF management, turning the Fund into a sort of world central bank.
The idea is that the IMF should activate its dormant powers to issue Special Drawing Rights. These SDRs would expand their role over time, becoming a “widely-accepted means of payments”.
Mr Bloom said that any switch towards use of SDRs has direct implications for the currency markets. At the moment, 65pc of the world’s $6.8 trillion stash of foreign reserves is held in dollars. But the dollar makes up just 42pc of the basket weighting of SDRs. So any SDR purchase under current rules must favour the euro, yen and sterling.
Beijing has the backing of Russia and a clutch of emerging powers in Asia and Latin America. Economists have toyed with such schemes before but the issue has vaulted to the top of the political agenda as creditor states around the world takes fright at the extreme measures now being adopted by the Federal Reserve, especially the decision to buy US government debt directly with printed money.
Mr Bloom said the US is discovering that the sensitivities of creditors cannot be ignored. “China holds almost 30pc of the world’s entire reserves. What they say matters,” he said.
Mr Geithner’s friendly comments about the SDR plan seem intended to soothe Chinese feelings after a spat in January over alleged currency manipulation by Beijing, but he will now have to explain his own categorical assurance to Congress on Tuesday that he would not countenance any moves towards a world currency.
Chinese indium export policies pushing price over $1000/kg
Indium is heading for prices of more than $1000/kg, according to industry analyst firm NanoMarkets in a new report “Chinese Indium Strategies: Threats and Opportunities for Displays, Photovoltaics and Electronics”, which examines the impact on the electronics and related materials industries of recent Chinese policies to restrict the export of indium. Even higher prices have been suggested in the Chinese press â as much as $3000/kg.
China is the world’s largest supplier of indium by far, accounting for almost three-quarters of world reserves and about half of production. As such, its policies affect the markets for all indium-related electronic materials.
This activity has recently been formalized in a new Chinese five-year plan, which is designed to stimulate domestic Chinese high-tech industries. NanoMarkets claims that this move by the Chinese government will have significant negative implications for several classes of electronics products (in the areas of displays, lighting, photovoltaics, compound semiconductor chips, lead-free solders). The report therefore examines China’s evolving indium policy in both economic and political terms and explains how it will act as a catalyst for creating new growth opportunities in both the extraction industry and advanced electronic materials industries worldwide, looking especially at the impact on markets for novel transparent conductors and compound semiconductors.
In particular, high indium prices may force the conservative display industry to shift to ITO alternatives, especially those using nanomaterials, believes NanoMarkets.
Japanese indium users, who currently use 70% of China’s indium production, may find themselves without sufficient indium within a year. As a result, NanoMarkets expects firms in countries that have not been large suppliers of indium (including Australia, Canada, Laos and Peru) to rush into the market.
NanoMarkets also predicts that, for the first time, there will be significant amounts of indium extraction from sources other than zinc mines (e.g. sources such as tin and tungsten mining). The Chinese indium policy seems certain to incentivize new sources outside China to produce indium, either through primary extraction methods or through recycling/reclamation, the firm reckons.
Also, a sharp rise in the price of indium will harm the resurgent copper indium gallium (di)selenide (CIGS) photovoltaic (PV) industry, but in turn this will open the door for cadmium telluride (CdTe) and crystalline silicon (c-Si) PVs, which will become more price competitive, says NanoMarkets. In addition, new classes of absorber materials (zinc or tin) may emerge that are CIGS-like but don’t actually use indium.
Bernanke: Inflation risk ‘modest’
Annalyn Censky, staff reporter March 1, 2011: 11:29 AM ET
NEW YORK (CNNMoney) — In his twice yearly testimony to Congress Tuesday, Federal Reserve Chairman Ben Bernanke acknowledged surging oil and food prices, but said that inflation would likely remain tame.
“My sense is that the increases we’ve seen so far — while tough for many people — do not yet pose a significant risk to the overall recovery,” Bernanke said.
Speaking before the Senate Banking Committee, Bernanke noted that rising commodity prices will likely be passed on to consumers, but this effect would be only “temporary and relatively modest.”
But he acknowledged that if higher prices persist, inflation could become a serious risk. “Sustained rises in the prices of oil or other commodities would represent a threat both to economic growth and to overall price stability,” he said.
The Fed projects inflation of less than 2% for each of the next three years.
Since the recovery began, the Federal Reserve has struggled to communicate its efforts to balance a somewhat schizophrenic economy.
Company earnings are improving and stocks have nearly doubled over the last two years. But businesses still aren’t hiring, the housing market has show few signs of life, and surging energy and food prices are hitting both businesses and consumers.
In his prepared testimony, Bernanke defended the Fed’s latest controversial methods of stimulating the economy.
In November, the Fed embarked on its second round of so-called quantitative easing, dubbed QE2, which is meant to boost business activity and consumer spending by keeping interest rates low and injecting $75 billion into the U.S. economy each month.
But he has recently come under fire for the policy, as critics argue it could boost long term inflation. Now that energy and food prices are rallying, the pressure on Bernanke has intensified.
On Tuesday, he repeated his claims that a wide range of upbeat market indicators show that the Fed’s recent actions have been effective.
“We have all the tools we need” for “a smooth and effective exit at the appropriate time,” said Bernanke, adding that the central bank is also ready and able to tighten monetary policy when needed.
When it comes to employment, the Fed chairman noted that the one million jobs established since the recovery began were barely enough to accommodate the inflow of recent graduates and other entrants to the labor force.
“Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established,” he said.
Bernanke also repeated calls for Congress to raise the debt ceiling. The government is currently restricted to a $14.294 trillion cap on how much it can borrow, and Treasury Secretary Tim Geithner has warned that level could be breached as soon as April 5.
“Not increasing the debt limit is like saying you’re going to solve your family’s debt problems by not paying your credit card bills,” Bernanke said.
The Fed chairman traditionally speaks before Congress twice a year, defending the central bank’s latest policies, in a formal testimony formerly known as the Humphrey-Hawkins reports.
– CNN Senior Producer Scott Spoerry contributed to this report.








