As Miners Soar, Dollar Slides

From Forbes.com:

As trapped Chilean miners were rising one by one to safety in a dramatic rescue attempt on Wednesday, shares of large mining companies were also on the ascent in London. But while people around the world marvelled at the celebrations that greeted the miners in South America, investors in Europe picked up the likes of Xstrata and Fresnillo for the more sobering reasons of strong production figures, higher commodity prices and (indirectly) actions by the U.S. Federal Reserve.

The Mexican miner Fresnillo was up by 3.2% or 40 pence to £12.81 in early afternoon trading after it reported a record output of silver and gold in the third quarter and said it was on track to meet its production targets.

Xstrata gained 3.9% to trade at £12.93 while Anglo American 3.6% to £28.35. Xstrata said it planned to restart its Falcondo ferro-nickel facility in the Dominican Republic, and was targeting 50% of capacity by March 2011.

Gold futures were higher, with spot gold trading hands at $1,358 per troy ounce, up $7.80 from its close on Tuesday in New York, amid rising expectations that the Federal Reserve would restart its quantitative easing program to boost the American economy.

The dollar fell against the euro, with the European single currency buying $1.396, up from $1.393 late Tuesday in New York. The dollar has weakened in response to expectations of a bigger Fed balance sheet, which has in turn made commodities like gold and oil more attractive.

No Greek Tragedy for the Mighty Dollar

From CNNMoney.com:

Now that Greece has finally gotten its bailout, are the days of the strengthening dollar over?

The greenback has gained about 8% against the euro so far this year. Many experts said a lot of this rally had to do with the notion that the dollar was now a much safer haven than the euro in light of the debt problems facing Greece, which is one of the nations that use the euro currency.

So it would be reasonable to think that the euro may finally get back on solid footing. Not so fast.

The dollar gained more ground against the euro Monday morning, the first day after the $146 billion Greek bailout was announced. And the dollar's strong run may not be over yet.

After all, even though it looks like Greece may be able to avoid actually defaulting on its debt; it's not as if the country is now fiscally fit. Plus, the bailout news was not a surprise. There's been speculation about an IMF/EU deal for months.

Dollar's days of dominance may end

From the Washington Times:

World Bank President Robert B. Zoellick warned Monday that, with foreign economic powers rising quickly on the world stage, time is running out for the privileged role enjoyed by the American currency.

The dollar's status as the world's reserve currency has given the U.S. prestige and privileges that are unique in the world, lifting living standards by enabling Americans to borrow cheaply and consume far more than they produce with little consequence for decades.

"The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency," Mr. Zoellick said in a speech to Johns Hopkins University's School for Advanced International Studies in Washington. "Looking forward, there will increasingly be other options to the dollar."

Mr. Zoellick, who was appointed by President George W. Bush, noted that the world economic order established after World War II, with the United States and a handful of European countries largely dominating, is quickly coming to an end.

White House Open to Global Currency?

The Obama administration has been clear of their support in the dollars strength in the past, but according to the Weekly Standard, there may have been a recent shift to the possibility of a global currency. I have included a snippet of their article below but the full post can be found here.

Last night, President Barack Obama expressed confidence in the dollar and declared: "I don't believe that there's a need for a global currency."

Normally, that would settle the issue. But in the past 24 hours two of Obama's top economic advisers have signaled an openness to such a new global currency -- in one form or another. What's going on?

Politico's Ben Smith reports that Treasury Secretary Timothy Geithner said this morning that he was open to a new global currency to replace the dollar, as proposed by a Chinese central banker. Geithner, according to Smith, said that the proposal -- which he has not yet read -- is less transformative that headlines have suggested. "We’re actually quite open to that suggestion – you should see it as rather evolutionary rather building on the current architecture rather than moving us to global monetary union," Geithner said.

Later, the moderator, per Smith "apparently sensing a gaffe," asked Geithner to clarify his remarks. Geithner walked back his earlier comments and said he does not see the dollar being sidelined by a new currency.

But Geithner wasn't the only top Obama adviser who refused to rule out a transition to a global currency. White House economic adviser Austan Goolsbee said much the same thing yesterday afternoon in an interview with CNN's Wolf Blitzer. Although he characterized such a change as "unlikely," Goolsbee twice declined to rule out such a global currency despite being pressed by Blitzer. "I haven't seen the details of the proposal," Goolsbee said. The entire exchange follows:

BLITZER: The Chinese suggesting today, this dollar, U.S. dollar, should be replaced as international currency, because they are beginning to have concerns that you are printing, the U.S. government is simply printing too many of these dollars and will lose its value as an international currency.

What's your reaction?

GOOLSBEE: It strikes me as probably unlikely.

Different people have in the past argued for world currencies or new -- new currencies before. I believe the U.S. at this point is the safest place to invest in the world. And it's likely to remain that the dollar is a critical currency in the years ahead.

BLITZER: So, you -- you don't like some new international currency that some Chinese are proposing?

GOOLSBEE: Well, look...

BLITZER: I assume that's right, right?

GOOLSBEE: I haven't seen the details of what they are proposing.

I mean, the dollar is the dollar. If people don't want to buy it, they don't buy it. But I think you have seen sort of a flight to the dollar in -- in times of trouble.

I don't know enough about monetary policy and currency to analyze the potential benefits and drawbacks of such a change, though several people I've spoken to believe it's an idea that's as undesirable as it is unworkable. But as a matter of instilling confidence in the U.S. economy at a time when such confidence is critical, it seems that Obama's answer was much better than the mixed messages coming from his top economic advisers.

U.N. Panel says World Should Ditch the Dollar

From Reuters.com:

A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar.

Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.

Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.

"It is a good moment to move to a shared reserve currency," he said.

Central banks hold their reserves in a variety of currencies and gold, but the dollar has dominated as the most convincing store of value -- though its rate has wavered in recent years as the United States ran up huge twin budget and external deficits.

Some analysts said news of the U.N. panel's recommendation extended dollar losses because it fed into concerns about the future of the greenback as the main global reserve currency, raising the chances of central bank sales of dollar holdings.

"Speculation that major central banks would begin rebalancing their FX reserves has risen since the intensification of the dollar's slide between 2002 and mid-2008," CMC Markets said in a note.

Russia is also planning to propose the creation of a new reserve currency, to be issued by international financial institutions, at the April G20 meeting, according to the text of its proposals published on Monday.

It has significantly reduced the dollar's share in its own reserves in recent years.