Sjeltur

It’s no secret the Chinese are very worried about the US dollar as the world reserve currency. A week ago the governor of the People’s Bank of China said out loud that a new currency reserve system controlled by the International Monetary Fund (IMF) could prove more stable and economically viable.

The reaction of the US government was very strange. First, they said “no” to the idea, then it was “maybe”, and now it’s back to “no”. While the US government is getting visibly nervous about the growing Chinese dislike of the US currency, China is actually increasing the pressure. The Chinese are sending a clear message to Obama on the eve of the upcoming G20 summit: we’re serious.

Last week representative Michele Bachmann asked US Treasury Secretary Timothy Geithner about the idea of a new world reserve currency: “Would you categorically renounce the United States moving away from the dollar and going to a global currency as suggested this morning by China and also by Russia, Mr Secretary?”

Geithner: “I would, yes.” She asked the same question to Federal Reserve Chairman Ben Bernanke, his answer: “I would also.”

But only a day later Geithner changed his mind, at a Council on Foreign Relations event Geithner stated he was open to supporting it. First a “no”, then a “maybe”, what is the US government really thinking?

Yesterday White House spokesman Robert Gibbs told reporters on the Air Force One, which was carrying Obama to Britain for this week’s G20 summit, that “we’ve been quite clear that the reserve currency of the world is now and will continue to be the US dollar.” So it’s back to “no”, apparently.

But the Chinese are not only expressing their concerns about the dollar as the world reserve currency, they also take action. Right before the G20 summit China announced they struck a $10.2 billion currency swap agreement with Argentina. This way Chinese imports will be paid with Chinese money, avoiding the US dollar. China has more agreements with other countries, all in Asia, except Belarus. The agreements are worth about $95 billion in total.

The new agreement with another country in a different part of the world is a clear message to Obama: we’re serious and not afraid to replace the dollar, we can do it, with or without you, because more and more we’re calling the shots, not the US.

Let’s wait and see how Obama is adjusting to this new reality.