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Subsequently, the People’s Bank of China suggested that it is dangerous for the global monetary system to rely on a small set of reserve currencies and renewed its call for a super-sovereign currency, causing more downward USD pressure. China also hinted that the IMF could take a role in managing a portion of the FX reserves of member states and that the SDR baskets should be broadened. But in terms of the bigger question of re-anchoring the global monetary system to a super-sovereign currency, there are a couple of obvious issues. Offshore deliverability and greater FX rate flexibility would be required for EM currencies. But, more broadly, such a currency will only be as strong as the weighted
average of its constituent actual currencies. Some suspect the real agenda is to establish a potential reserve asset with a reduced degree of individual national control over the policies that affect its external value. Despite all the commentary, a shift to a reformed SDR-based reserves management regime still seems quite unlikely. Genuinely substantial diversification away from the USD in the context of
managed EM FX rates and significant FX reserve accumulation is highly charged politically, given the transfer of the burden of USD adjustment that it represents.

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Indeed, a growing number of G10 central banks have expressed concern over currency appreciation. The Swiss National Bank appears to have intervened directly to push CHF lower against both EUR and USD. Talk from the Bank of England made a direct point of the possibly beneficial impact of a weaker currency in light of the dire economic conditions in the UK. All three commodity currency central banks – the Bank of Canada, the Reserve Bank of Australia, and the Reserve Bank of New Zealand – have taken note of the deleterious impact of stronger currencies on their own economies. And in more coded terms, the ECB
has expressed some concerns as well. Such commentary likely has a substantial US blessing, given a strong USD is currently very clearly in the interest of the US, considering the possible downside from the sort of capital market chaos that could result from a sudden and uncontrolled slide in the dollar.

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The data flow in the near term will put the feasibility of the green shoots story to the test, with the all-important US data points of ISM, ADP report, and payrolls out during a holiday-shortened week. The markets expect another 350,000 jobs to be lost; The ECB has its rate announcement on Thursday and, more importantly, its press conference; the Riksbank also is on Thursday. Market expects neither bank to do anything policy-wise.