* Geithner comment on SDR causes euro/dollar volatility
* Geithner says US dollar to remain top reserve currency
* Volcker says China proposal on SDRs not practical
(Adds comment, updates prices)
By Gertrude Chavez-Dreyfuss
NEW YORK, March 25 (Reuters) - The U.S. dollar fell against
major currencies on Wednesday after U.S. Treasury Secretary
Timothy Geithner said he was open to expanding the use of the
International Monetary Fund's special drawing rights.
Investors initially interpreted his remarks as an
endorsement of China's proposal on Monday to eventually replace
the dollar as the world's reserve currency by the IMF's SDRs.
Geithner's comments sent the dollar falling to the bottom
of its range of the last five day against the euro, although it
did recoup some of its losses after the Treasury's top official
said the greenback would keep its status as the top reserve
currency for a long time. For details, see [].
"The market was caught off-guard by Geithner's statements
and investors sold the dollar. I don't know why he said
it...maybe he's trying to placate the Chinese," said Joe
Francomano, vice president of foreign exchange trading at Erste
Bank in New York.
"But his comments are not be taken lightly as the U.S.
approaches debt of nearly $2 trillion. And when you say it as
flippantly as he did, then that's very irresponsible."
In late afternoon trading, the euro was up 1.0 percent
against the dollar at $1.3596 <EUR=> after rising as high as
$1.3649 in the wake of Geithner's remarks, according to Reuters
data.
China's central bank governor said earlier this week that
the world should consider the SDR, a basket of dollars, euros,
sterling and yen, as a super-sovereign reserve currency.
[].
Geithner, responding to a question at a Council of Foreign
Relations event in New York, said he had not read the Chinese
proposal but added, "as I understand it, it's a proposal
designed to increase the use of the IMF's Special Drawing
Rights. I am actually quite open to that suggestion.
And he added, "But you should think of it as rather
evolutionary, building on the current architecture, than --
rather than -- rather than moving us to global monetary
union."
INITIAL DOLLAR SELL-OFF UNJUSTIFIED
Paul Volcker, a senior adviser to the Obama administration,
thinks China's proposal was not practical. When the Chinese
questioned the dollar's role as the world's reserve currency,
"they ignore the fact that they didn't have to buy those
dollars in the first place so they contributed to the
problem."
Some analysts said the initial sell-off in the dollar after
Geithner's statement was not justified.
Marc Chandler, global head of currency strategy at Brown
Brothers Harriman in a note to clients said President Barack
Obama's recent comments about the dollar being fundamentally
strong, and there being no need for another reserve currency,
was a better underlying guide to the U.S. administration's
position.
IMF Managing Director Dominique Strauss-Kahn also gave his
full support for the U.S. dollar on Wednesday, saying the
greenback's days as the world's top reserve currency are not
over, adding the Chinese believe so as well. [].
Against the yen, the dollar fell 0.3 percent to 97.42
yen<JPY=>, trading between a peak of 98.34 and a low of 96.93.
The Norwegian crown was also in focus on Wednesday, falling
against the euro and dollar after the Norges Bank cut interest
rates by half a percentage point to 2 percent.
The dollar was 1.8 percent higher at 6.5135 crowns <NOK=>,
while the euro climbed 2.9 percent to 8.8530 crowns <EURNOK=>.
The pound, meanwhile, fell against the dollar <GBP=> to
$1.4554, down 0.8 percent on the day. It initially rose on
Geithner's remarks.
Sterling was pressured earlier after UK data showed retail
sales fell more sharply than expected in March and after a UK
gilt auction failed for the first time since 2002, suggesting
reduced demand for sterling assets. []
(Additional reporting by Nick Olivari)
