By Simon Johnson
On his China visit, Secretary Geithner is immediately on the defensive. The language he is using on the Chinese policy of exchange rate undervaluation-through-intervention is the mildest available. And the commitment he is making, in terms of bringing down the US deficit – which we all favor – is an extraordinary thing to put numbers on in a foreign capital. Such commitments are of course unenforceable, but still the wording indicates – and is understood by China – great US weakness.
Not surprisingly, China seems likely to push for more. Their main idea is that some part of their US dollar holdings be transferred to a claim on the International Monetary Fund, which would shift it from being in dollars to being in Special Drawing Rights – and therefore a claim against (a) the IMF’s whole membership, and (b) presumably, the IMF’s gold reserves.
This is a bad idea.
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GUANGZHOU, China — General Motors has reached a preliminary agreement for the sale of its Hummer brand of large sport utility vehicles and pickup trucks to a machinery company in western China with ambitions to become a carmaker, a person familiar with the Chinese government approval process said Tuesday.
