G20/IMF Meeting

The G20/IMF meeting starts today in Washington and that will last until 25 April 2010. The message will be very clear – those with heavy debt should allow their currencies to depreciate and those in surplus position should allow their currencies to appreciate.

To add to the pressure on China, a US Senate Banking sub-committee will be holding a hearing today to examine the impact of the RMB on US manufacturing. US Senate Banking Committee Chairman Chris Dodd has responded to reporters concerning his expectation of what President elect Obama will do concerning the China Yuan currency manipulation. Higher-ups in the international economy are quietly buying China currency while the American dollar is strong and waiting for U.S. pressure legislatively to be applied to the Obama administration. Huge potential profits await as the RMB gets released from captivity to rise to all-time highs.

We could expect to see Obama administration to seek greater international cooperation via the G20 forum to pressure China into action. So far, two of the BRIC economies – Brazil and India, have joined in calls for a stronger RMB. Russia on the other hand, holds a common position with China to promote the greater use of IMF SDR for international trade and investment transactions.

In the end, the reality remains that China will make the final decision. Last night, the Commerce Ministry declared China will not be subjected to international pressure to revalue its currency. China doesn’t subscribe to the view that its currency is primarily responsible for US’s trade deficit woes, especially now that it has reported a trade deficit. China is more concerned now with its efforts to address its domestic imbalances – cooling its property sector.

With Eurozone in crisis, it makes less sense for China to abandon its stable RMB policy, which it said was an emergency against the global financial crisis. The IMF warned recently that Greece could mark the starting point of a new phase in the global financial crisis.

A RMB revaluation remains a possible but improbable outcome at this week’s G20/IMF meeting. One just should take note of the larger issue for the foreign exchange market is the depreciation pressure on the EUR from the deterioration in Eurozone’s sovereign debt crisis. Following next is the April 28 FOMC meeting as well as the Senate hearings on Goldman Sachs a day before.