Wednesday, March 25, 2009

Greenback Reclaims Ground

The dollar, which fell to session lows against the euro and yen Wednesday morning after U.S. Treasury Secretary Timothy Geithner said he is open to considering a new global reserve currency, came off those lows after Geithner clarified his remarks.

The secretary said the U.S. will act to keep the dollar the key reserve currency.
Foreign Exchange Data
[foreign-exchange prices]

"The dollar remains the world's dominant reserve currency. I think that's likely to continue for a long period of time," Mr. Geithner said. "As a country we will do what is necessary to make sure we are sustaining confidence in our financial markets' and economy, and that will support the dollar.

The euro was recently trading at $1.3562 after rising as high as $1.3653 earlier. The dollar was at ¥97.65 after falling as low as ¥96.90.

The issue of a new global reserve currency to replace the dollar has built up steam lately, after both China and Russia proposed expanding a Special Drawing Rights, or a unified basket of currencies issued by the International Monetary Fund. An independent expert panel convened by the United Nations is also expected to recommend an expanded SDR this week.

Mr. Geithner earlier Wednesday said he hasn't yet read China's proposal, but that he was "open" to considering expanding an SDR. He also said he believes the market may have gotten ahead of itself in interpreting the Chinese proposal as a move to unseat the dollar as the world's primary reserve currency.

He added that the dollar's future role "depends primarily on how effective we are" at developing an economic recovery and return the government toward a more sustainable fiscal path.

This contradicts comments he made Tuesday, when along with Federal Reserve Chairman Ben Bernanke, he denounced the idea of a new global reserve currency. President Barack Obama also reaffirmed his belief in the strength of the U.S. dollar at a prime-time press conference at the White House Tuesday night. Obama said that global investors still looked upon the dollar as a safe investment, and the U.S. economy as more stable than others around the world.
[Currency] Getty Images

The dollar has been the world's reserve currency since the end of World War II. Major commodities, namely oil, are priced in dollars, and global companies do business in dollars, leading wealthy central banks to prefer to hold dollars to protect against crisis. But, as the U.S. manages the effects of the global financial meltdown by expanding its monetary supply and weakening the value of dollar-denominated assets, some of the U.S.'s largest creditors have grown unhappy as the value of their reserves decline.

Earlier Wednesday, U.K. Prime Minister Gordon Brown said in remarks that there will be no discussion on a new reserve currency at the upcoming Group of 20 summit.

Wednesday morning, the euro was at $1.3563 from $1.3443 late Tuesday, and the dollar was at ¥97.64 from ¥97.88, according to EBS. The euro was at ¥132.45 from ¥131.60. The U.K. pound was at $1.4638 from $1.4670. The dollar was at 1.1245 Swiss francs from 1.1310 francs.

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