Saturday, March 28, 2009

Some Recent Articles of Interest

Soros on the G20 meeting and the possibility of world economic depression:
He was not optimistic about the G20 meeting, saying the odds were that it would fail because there were so many differences of opinion. The price could be years of economic devastation worse than the Great Depression. “It is really a make-or-break occasion.”

It would be a disaster if the meeting were allowed to turn into a talking shop, he said. “It’s not enough to state general principles. You’ve got to come up with practical measures that are going to provide protection to the developing world, periphery countries, against a storm that originated from the centre, against a calamity that is not of their own making.”

The future of the dollar, and reserve currencies:

The U.S. will probably block China’s push for a global reserve currency, seeking to protect the status of the dollar as it finances a record budget deficit, two former International Monetary Fund economists said.

“Why should the U.S. give up its reserve currency position, which enables it to borrow easily?” said Hua Ercheng, chief economist in Beijing at state-owned China Construction Bank Corp., adding that the U.S. government has veto power in the IMF. “They won’t allow any other currency to compete for the dollar’s dominant position,” according to Wang Tao, head of China research at UBS AG...

A proposal for an additional allocation of SDRs (IMF Special Drawing Rights Currency) was approved in September 1997 by the IMF’s Board of Governors. The allocation would double outstanding SDRs to 42.8 billion ($64 billion). While 131 members with 77.7 percent of the voting power have accepted, the U.S. has yet to approve the proposal, which needs 85 percent backing. The U.S. has 16.75 percent of total IMF votes.

And, only about 300 to 500 billion of China's reserves are liquid:
China's foreign exchange reserves could become dangerously illiquid if the yuan depreciated and hot money began pouring out of China, a report from a Ministry-backed research institute said....

The report, which was being circulated to policymakers, advised that the remaining disposable funds be used to help Chinese companies go abroad or invested in resources.

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