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US-CHINA TALKS CENTRE ON YUAN PEG
At the close of talks between the US and China this week, US Treasury Secretary Tim Geithner voiced a growing hope that China might end its most recent yuan peg to the dollar, telling Bloomberg Television that he was “as confident as I’ve ever been” that Beijing would soon relent. But China insisted that the US had recognised that the change would come at a time of Beijing’s choosing. Assistant finance minister Zhu Guangyao reiterated China’s independence, saying: “We have the right to decide our own exchange rate regime and noise from the outside only delays (currency reform).” Any reform also looks likely to be significantly delayed by the euro crisis.

SPANISH BANKS COULD DROWN THE EURO
The euro dropped to $1.22 as Pimco CEO Mohamed El-Erian voiced worries that Greece’s debt crisis could spread via weaknesses in the Spanish banking system. El-Erian told the American Public Broadcasting Service: “Banks have a way of amplifying shocks in the system because banks are like the oil in your car. They link up so many different parts.” Talking about the EU as an economic bloc, he added, “The hope is the rescuer can pull out the person who is drowning. The risk is that the person drowning will pull down the rescuer.”

WON DROPS AGAINST THE DOLLAR
The Korean won dropped 4.5 per cent against the dollar after the US announced it would be aiding South Korea in anti-submarine preparations and Kim Jong-Il ordered the North Korean army to be ready for battle. With Asian stocks at a 10-month low, confidence is fragile. But investors are still more concerned about the debt crisis than Korean sabre-rattling: the euro fell to ?1,500.79.