China won’t let it go

July 1, 2009

China is back again, advocating the need for a new world reserve currency. Reuters reports that the country wants to debate the issue next week at the G8 summit in Italy.  The nation with around $2 trillion of currency reserves under its belt has been floating the idea off and on since April.

Though China isn’t a member of the G8, it is part of the so-called G14 that will be meeting on July 9.

From Reuters:

One G8 source who was involved in the negotiations said China made the request during preparatory talks about a joint statement to be issued on the second day of the summit in L’Aquila by the G8 plus the G5 (Brazil, India, China, Mexico and South Africa) and also Egypt.

This forum, the so-called “G14″, meets on July 9 to discuss the financial crisis, trade and climate change and for the first time a G8 summit will also produce a joint G14 statement.

A European source with knowledge of preparations for the summit also said China had raised the subject of a reserve currency debate and that it might be mentioned during the meeting, though the source added: “Any country at the meeting can raise issues they see fit.”

“But whether there is a specific mention in the communique remains open,” said the European source, adding that sherpas would discuss this further in preparatory talks on Friday.

Brown Brothers and Harriman currency strategist Marc Chandler though cautions against reading too much into this, especially if you’re selling the dollar as a result. Among the many reasons is the big gap between what China has said on the matter and what they do.

What they say sounds like they want to end the dollar’s role as the numeraire.  What they do is accumulate dollars and Treasuries, with some officials acknowledging they have no choice.

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