The Group of Eight, formed by the eight largest economies in the world, has opened the doors to emerging markets.
The new G5, the group of five, includes Brazil, China, India, Mexico and South Africa.
The Wall Street Journal reports, “The so-called Group of Five, making their fifth straight appearance at the annual summit, albeit as invited guests, will discuss climate change, development aid, global economic growth and international trade with their Group of Eight counterparts – all topics touched on by G-8 leaders meeting on their own Wednesday.”
Not on the official agenda is the U.S. dollar, but you can bet that issue will be thoroughly discussed.
China has led the call for a new international reserve currency that would knock the greenback down a few pegs and perhaps provide a little more stability for countries with large foreign currency reserves.
Unfortunately, China’s president, Hu Jintao, “cut short his stay in Italy and canceled his attendance at this week’s Group of Eight leaders’ summit due to violence in China’s Xinjiang region,” reports MarketWatch.
But China isn’t alone in calling for a diversification of reserve currencies.
New G8 member Russia has also been vocal about dollar fears, and India and Brazil are just now jumping on that bandwagon.
How effective will these meetings be?
Fortune’s BreakingNews.com editor Pierre Briancon wrote, “In the thirty-odd years of the event’s history, the annual meetings have produced no serious decisions or major breakthroughs. What started in the mid-seventies as an informal, pool-side meeting between the leaders of the U.S., U.K., Germany and France has degenerated into a solemn and empty diplomatic celebration of banalities and good intentions.”
What hope does the G5 have of making its case for a new world currency? Not much…
Bloomberg reports, “Brazil’s President Luiz Inacio Lula da Silva wants the biggest developing nations to use their own currencies in settling trade accounts, India’s Foreign Secretary Shivshankar Menon told reporters yesterday.”
But Menon also said that the process of transitioning to a new reserve currency is a long-term goal for the G5.
In the meantime, the U.S. dollar may see some surprising movements.
Justice Litle, editor of Macro Trader, writes, “As the world takes a deep breath and learns to fear deflation again, the U.S. dollar could rise sharply, to a lot of folks’ surprise, as U.S. based investors withdraw from global markets and come rushing back home.”
That means that other currencies might fall relative to the dollar.
To find out how Justice’s Macro Trader readers will take advantage of this potential movement, learn more about his service here.
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