Dollar Slides After China Calls for ‘Super-Sovereign’ Currency

Dollar Slides After China Calls for ‘Super-Sovereign’ Currency
By Oliver Biggadike and Bo Nielsen


June 26 (Bloomberg) -- The dollar dropped against all of its most-traded counterparts after China repeated its call for a “super-sovereign” currency.

The greenback headed for its biggest weekly loss against the euro in a month after the People’s Bank of China said the International Monetary Fund should manage part of members’ foreign-exchange reserves. China is the biggest foreign holder of U.S. Treasuries, with $763.5 billion in April.

“The concern of reserve diversification is always lurking in the background,” said Martin McMahon, a foreign-exchange analyst at Credit Suisse Group AG in Zurich.

The dollar weakened 0.8 percent to $1.4101 per euro at 8:34 a.m. in New York, from $1.3988 yesterday, extending its loss this week to 1.1 percent. The dollar will decline to a level between $1.50 and $1.60 euro in the third quarter, McMahon said. The yen weakened 0.3 percent to 134.59 per euro from 134.22. The U.S. currency fell 0.5 percent to 95.44 yen from 95.95.

The Dollar Index, which the ICE uses to track the greenback against the currencies of six leading trading partners, fell 0.8 percent to below 80.

“To prevent the deficiencies in the main reserve currency, there’s a need to create a new currency that’s delinked from the economies of the issuers,” the People’s Bank of China said in a review of the economy in 2008 released today.

People’s Bank Governor Zhou Xiaochuan urged the IMF in March to expand the functions of its unit of account and move toward a “super-sovereign reserve currency.” Russian President Dmitry Medvedev proposed on June 5 that nations use a mix of regional reserve currencies to reduce reliance on the dollar. ...........(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601087&sid=aZRxTYlhrMZM

we don't see these stories when the dollar rises against other currencies.

This story is more nonsense designed to steer the herd towards positions that will profit smarter investors.

The dollar will remain the reserve currency for the forseeable future for the simple reason that there is no other economy large enough to be able to perform the role; the US alone represents a third of the global economy.

The other major factor is that, endemic corruption here aside, any potential replacements would have to come from nations that are significantly more corrupt.

The Euro is a very bad bet right now, as the eurozone is about to get hammered with their version of subprime - Eastern Europe. Western Europe loaned incredible amounts of money to the developing part of the continent; a large percentage of that money isn't going to be paid back. Then there is the disunity among the governments that participate in the Euro and the fact that many of them have not been meeting the financial discipline targets that the pact that created the Euro requires.

And then we have the not-insignificant matter of the ECB dumping $660 billion into the markets this week, taking their own hand at 'quantitative easing'.

What we are seeing is a coordinated devaluation of currencies... they are taking turns so that there is nowhere safe to flee, thus no reason to abandon any specific currency. So you will see the USD take a hit, then the Euro, then the Yen, and so on and so forth.

After all, if the Euro is such a hot deal, why did Austria just implement a policy of selling bonds in non-Euro currencies? Not the sort of thing to do, unless they have an incredibly strong reason to believe the Euro is in serious trouble.