A pair of very conflicting news articles over the weekend about secret currency talks caps yet another week full of central bank interventions in the FX arena (and, as Bruce Krasting points out, many more to come). Yesterday, the FT reported that France and China had been in secret talks over "heightened co-ordination of exchange rates" which is another way of saying finding alternatives to the rapidly debasing US Dollar. "The talks and their content have been kept secret, in an attempt to draw China into a discussion on global currency co-ordination, a subject that Beijing has been reluctant to countenance in the past. In an ambitious move reminiscent of the currency accords of the 1980s, President Nicolas Sarkozy hopes to open a debate on the subject when France takes over the presidency of the G20 group of leading nations in November, according to people familiar with the matter." Yet China's desire to engage in a currency axis away from the US is no secret, and many have alleged that Beijing has approached both Russia and Germany in the past about a USD substitute. The timing of the latest escalation of the battle to the currency bottom is not surprising: "The move comes against the background of rising concern over exchange-rate interventions by a host of countries, most notably China but also Japan and South Korea, to prevent their currencies from rising against the dollar." Perhaps China, which has been reticent in exposing its CNY domination plans in the past, was just waiting for the correct provocation to go public with its plans. And last week's move by Congress to retaliate against China and impose duties on imports because of undervaluation may be just that provocation.
Yet, in a response that was launched within minutes of the FT article appearing, France immediately issued a denial of any secret talks, confirming that the counter-USD axis will not hit the mainstream until it has the support and backing (and, most likely, raw material backstop) of all pro forma member countries. Bloomberg chimes in: "France has not held secret talks on currency coordination with China, a French government official familiar with the matter said, denying a report in today’s Financial Times."
Bloomberg also amusingly references the April 2009 G-20 meeting whose pledge has now been overturned by all member countries:
"The G-20 pledged in April 2009 in London to “refrain from competitive devaluation” of their currencies, and the leaders said at their last gathering in Toronto in June that “market- oriented exchange rates that reflect underlying economic fundamentals contribute to global economic stability."
One wonders what lies the G-20 meeting will pledge this year? Because if the daily interventions by pretty much every single central bank are indicative of anything, we would venture to guess it is precisely "competitive devaluation." Yet in the last days before the collapse of the "status quo", our fearless "developed" leaders can be forgiven for blatantly lying to the people. After all, it is more than obvious that they stand to lose not less than everything when their pet regime finally unravels.