China Insists IMF Consider New Reserve Currency

Posted June 28, 2009

China continues to push IMF for new world reserve currency. The Brazil real strengthens in reponse to investor interest in largest IPO ever offered. The Swiss france continues to weaken against the euro.


China continues its call for a new world reserve currency that includes more than the US greenback.  Despite assurances from Japan, the UK, and Russia that there is no easy alternative available for the US greenback and they have faith in the US dollar, China insists the US dollar should not be the only primary currency for world trade.  China has called upon the International Monetary fund to make a serious effort to manage foreign exchange reserves in way that is more equitable and uses a basket of currencies instead of a single currency. 

As the US dollar comes into question as the best currency for world reserves, it weakened against the euro more than it has in a month.  It also fell against the yen.  The greenback fell to $1.4056 against the euro and to 95.18 yen per US dollar.  The US dollar also fell against the South African rand to 7.8926 rand per dollar. 

It has become apparent the US interest rate will be kept at near zero by the Federal Reserve for the rest of this year as the threat of inflation continues to be held in check. 

The Brazil real strengthened to 1.9363 real per US dollar.  The increase was largely due to an initial public offering of shares in Visa Inc. that attracted foreign investors.  Brazil is the leading economy in Latin America.  The IPO is intended to raise 8.4 billion reais which is the largest such sale in the history of Brazil.

Brazil reduced its Selic rate to 9.25 percent this month which is a full percentage point. 

The Swiss franc weakened against the euro to 1.5230 francs per euro as the Swiss National Bank intervened in the currency market to prevent further strengthening.  The Swiss franc fell against the US dollar to 1.0834 francs per greenback.  The Swiss government does not want the franc to weaken beyond 1.50 francs per dollar.

The Venezuelan bolivar fell to 6.90 bolivars per US dollar as oil prices fell.  The fall was attributed to the government indicating that investors will not be able to obtain US dollars until 2011 using the new $3 billion offering of corporate bonds. 

The Canadian dollar weakened to 86.77 US cents.  This represented a weekly decline for the fourth straight week.  The decline was partly due to the fall in crude oil prices for August delivery to $69.16 a barrel.  Some investors see the loonie’s fall as merely a realignment of currency value in the market place.

The Canadian GDP is predicted to contract by 3 percent for the 2009 calendar year. 

The UK pound declined against the euro to 85.27 pence per euro but rose to $1.6540 against the US dollar.  The Bank of England Governor Mervyn King reported that he expects the British economy to recover slowly and uncertainly from the recession.  As has been reported, recovery from the recession is expected to remain on uncertain footing until the banking industry is stabilized.  Historically there has not been a possible recovery from a recession until credit lending has resumed. 

The UK banks are still not lending money to businesses and consumers are not spending.  Though manufacturing numbers are up now for 2 months in a row, the continued tight credit is a sure sign that the banks are still not back to doing normal levels of business transactions.  What is happening in the UK is an indication of how most countries will experience the recovery from the recession – slowly and in fits and starts.