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16. 11. 09. - 18:00

Nihau President Obama

By Austrian Times Special Correspondent John Morris in China

President Obama landed late Sunday night in a wet Shanghai to start the much awaited official visit to China.

Major talking points will be to find common ground and move forward on various issues but high on the agenda will be the US $ and trading. This has major significance throughout the World as the US $ is the global trading and reserve currency.

Austrian Raiffeisen Zentral Bank general manager for China, Andreas Werner explained that 70-80% of commodities like crude oil and iron ore, are traded in US $. This places the whole US presidential visit to China as a highly important global event. It will effect most people around the World including Austria because it effects the way we trade and the rules of trading. Austria lies in the Euro zone, but still most of its trading is transacted in US $ like for example the oil price. Its of vital importance to the Austrian emergence from recession that these matters are clarified. A rising oil price could scupper the chance of economic recovery so the exchange rate issue needs to be addressed. The Americans are acutely aware of the global implications of the Yuan pegged to the US $ and Obama is bringing this agenda item to the table in Beijing.

China is currently boasting a staggering 8 per cent economic growth and growing whilst much of the World is still shaking from the deepest recession since the 1930s.

China has been amassing trillions of US $ in reserve and has emerged as the World’s largest creditor as its exports dominate World trade. The USA, on the other hand, is the World’s largest debitor.

As one US businessman explained, “We would like to see a level playing field between our two nations on matters of trade. Chinese products are gaining an unfair advantage and currency fluctuations do not exist allowing a balance as the Chinese Yuan is pegged to the US $”.

For this reason, it is highly likely that the Americans will try to negotiate a change in the Chinese currency status so that Chinese currency is allowed to float.

Currently, the Yuan remains static at the same exchange rate to the US $. The American economists claim that pegging the Chinese Yuan to the US $ gives Chinese products an unfair advantage in the market place which is causing a massive trade imbalance which cannot be easily altered without restrictive practices such as trade barriers including import duties or taxes.

Key to Obama’s goal will be what the US has to offer China in exchange for a breaking of the link between the Yuan and US $. China is in a strong position but has distinct needs with technological know-how and smart management systems to assist sustainable growth and development. Therefore there will be some hard bargaining behind the scenes to reach US goals and global interests.

During his visit to China, President Obama will also visit Beijing and take in the mandatory visits to the Forbidden City and also the Great Wall of China as the President of the World’s largest economy meets the leaders of the World’s number 2 economy. But culture is not going to solve the currency and trade deficit issue.

Maybe the solution to the US $ saga can be found closer to the US homeland in Canada? Canadian Nobel Prize-winning economist Joseph Stiglitz proposes moving away from the US $ as the World’s reserve currency.  Stiglitz would like to see a new neutral World reserve currency created that would facilitate financial markets and cushion the US and global markets from upheavals like the great crash of 2008. This would assist the US as it could keep the US $ and adjust its value against the new World reserve currency and allow markets to be flexible which pegging actions like the Chinese fail to achieve. Essentially, it allows balance in World economies to prevail whilst preserving competition, choice and quality. Stiglitz has been awarded the Nobel Prize for his thinking. May be it’s the right time to seriously consider Stiglitz's proposition? President Obama's  "Yes we can!" might be adjusted to "Yes we should... revisit the US $ status!" as the right line to take.

Feedback and comments:

john.morris@austriantimes.at

John Morris

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