Geithner speaks, China ignores him

On June 2, CNN cross-reported:

BEIJING (Reuters) -- China agrees with the United States that the dollar will remain the world's main reserve currency for a long time to come, U.S. Treasury Secretary Timothy Geithner said on Tuesday.

Chinese central bank governor Zhou Xiaochuan has floated the long-term possibility of replacing the dollar as the world's main reserve currency with the Special Drawing Right, the International Monetary Fund's unit of account.

But Geithner, wrapping up two days of high-level talks, said: "I believe the Chinese expect the dollar to be the principal reserve currency for a long period of time, as do we."

Then on July 2, Bloomberg's Bob Chen and David Yong reported:

China will allow companies to use the yuan to settle cross-border trade and let them keep their entitlement to export tax rebates, seeking to reduce the reliance of importers and exporters on the U.S. dollar...

“It’s China’s first step to make the yuan global,” said Shi Lei, an analyst in Beijing at Bank of China Ltd., the nation’s largest foreign-currency trader. “It will protect exporters from swings in exchange rates and boost the yuan’s role in the world currency system.”

China is promoting greater use of the yuan in international trade and finance after Premier Wen Jiabao in March expressed concern that a weakening dollar will cause losses on the country’s holdings of U.S. assets. A Chinese Foreign Ministry official said today he hoped the U.S. currency would remain stable, while reiterating a call for diversification of the international monetary system.

And now on July 8, Bloomberg News reported:

Huang Xinyuan, who sells mining equipment and pesticides to customers across China’s border with Vietnam, says he no longer wants payment in U.S. dollars and prefers the yuan.

Sales using the greenback at Guangxi Jinbei Group, where Huang is vice president, dropped to 30 percent of contracts in 2008 from 87 percent in 2007. The yuan, which has gained 21 percent since it was allowed to strengthen against the dollar starting in 2005, offers greater stability, he said.

“In recent years, the dollar has gone in only one direction and that is down,” said Huang, 45, in his second- floor office in Pingxiang, a town set amongst karst limestone hills and sugar-cane fields in China’s southwest Guangxi Zhuang Autonomous Region, three kilometers (1.9 miles) from Vietnam. “Settling our orders in yuan removes a major risk.”

Clearly China is doing everything it can to ensure that "the dollar will remain the world's main reserve currency for a long time to come..." Ha.

I wonder if Geithner actually believes his own words?

Tim White