Today's Geithner talking about his readiness to use the SDRs system could put more weights on the greenback. This announcement came after the Chinese criticism of the current system which is based widely on the US dollar which can be impacted by the US interior factors. If the market put this insight with the current quantitive easing policy and the recession pressure in US which is resulted from the collapse of the housing market in US and the credit crisis that followed this collapse, the greenback can be under potential pressure can undermine it and reverse its recent uptrend and increase the demand for the gold as a fixed store of the countries reserve which rose.

The gold spiked up more than 15$ after Geithner's declaration which made a shock to the market and the greenback current pricing however this change can take a long time. Geithner has said today that US is willing to explore China’s proposal to give a synthetic global currency a larger role in the international financial system but he indicated that this can not replace the US dollar.

The IMF has reviewed the SDR basing on the trade balance and the net values of the exports and imports of the countries and the denominated currencies reserves held of the members and this revision is on from the beginning of 2006 and the next expected revision of this system is expected to be next year. The SDR was initially defined as 0.888671 gram of the fine gold before revising it into a basket of currencies contains the US dollar, the British pound, the Euro and the Japanese yen. This calculation can pour in the benefits of the Chinese who have a huge surplus and cause further woes to the greenback which suffering a coincident trade deficits of the goods and services and hurt by the credit crisis and the supplied money floods of the US stimulation packages which increased the Chinese worries recently about their reserve of the US treasuries.

Best wishes

FX Consultant

Walid Salah El Din

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