During its talks with the United States last week, China stressed the need for the United States to make a commitment towards putting an end to the deterioration of its currency “since it is one of the primary countries in the world that export reserve currencies. The U.S must also find the correct balance while dealing appropriately with the impact of its available dollar supplies on both the local and the world economies”. Although the strategic partner in these talks also urged China to allow its currency to rise in value, the depreciation of the dollar could cause the most harm to the global economy given the expansion of the U.S public debt, and the growing deficit in both the U.S budget and trade balance (even when the deficit in the latter has shrunk as a result of the recent decline in imports, and the growth of exports). The fact of the matter is that during a period of “hasty” economic cycles, the large global savings themselves have contributed to the many causes of the global financial and economic crisis: The high rates of growth, for instance, led to massive consumption of oil and basic raw materials, whether minerals, non minerals, or agricultural, which in turn led to worldwide cash surpluses thanks to their lucrative investments. This caused the so-called “great savings”, which not only happened in regular commercial banks across the world, but also in central banks and treasury portfolios, with some of the surpluses being secretly transferred to tax havens. In comparison, the volume of transcontinental capital amounted to 27 percent of world's GDP in the years 2007 - 2008, up from 22 percent in 2000, or about 15 trillion dollars. But there is a difference of 5 to 7 percent of gross domestic product that does not appear in the accounting of the capital's trip between origin and destination, and it is assumed that this difference in fact ultimately goes to tax havens. Meanwhile, the emerging countries alone attracted 5 trillion dollars by the end of 2008, of which China's share was 40 percent. According to a study by three American economists (Maurice Obstfeld, Jay C. Shambaugh, & Alan M. Taylor), the world's surplus reserves are an insurance policy against the possibility of a domestic banking crisis. In this vein, central banks accumulate reserves which have growth rates greater than the growth rates of the banking system in the country. This is in order to have a solid foundation through which central banks can help the other banks when faced with a crisis of confidence. Prior to the crisis, the global reserves avoided investing in sectors that do not provide rewarding and lucrative returns on investments as a result of their low main interest rates. They thus found the real estate sectors in the U.S., Britain and Spain to offer a large opportunity for investments, especially under the real estate bubble and the heavily diversified - albeit complicated and irregular -capital instruments. These allowed the investing parties to collect dividends that are exceptional if compared to regular investments and the annual returns of companies' shares. Also, long term investments could no longer be balanced with a global financial influx that seeks quick profits, which can only be achieved through feats of high risk and quick investments in real estate, and in companies and large stock portfolios in capital markets. After the crisis, however, the areas of guaranteed investments for this massive reserve were diminished. While it is true that the World Bank had estimated the volume of transcontinental capital to have declined by about one third, the pre-crisis accumulation funds as well the reserves that were set aside to confront the crisis are still considered to be massive. Naturally, these are seeking guaranteed markets that would protect the value of its constituent currencies, under the threat of their otherwise inevitable replacement by a new global reserve currency. Furthermore, and in spite of the decline in the mobility of global capital, the central banks have hoarded enough funds to outweigh the needs of local commercial banking systems, should the latter be exposed to crises. These surpluses, however, have become a source of concern out of the need to find safe investments through which they can be channelled. In the relative distribution of who attracts the global savings, the United States ranked first attracting 49.2 percent by the end of 2008, followed by 9.8 percent in Spain, 8 in Britain, 3.8 in Australia, 3.8 in Canada, 3.5 in Italy, 3 in Greece, 2.5 in Turkey, and 20.2 percent for the rest of the world. Also, the United States' share is expected to rise further due to a change in the behaviour of families and companies in the U.S. when it comes to spending and investment. With the situation being as such, families are saving more while companies are investing less. This will translate into a decline in the flow of finances into the public treasury of about 4 percentage points of the gross domestic product, according to estimates by Patrick Artus, the director of economic research at Natixis. Therefore, the United States remains the most attractive destination for global capital surpluses, which in any case the United States needs for two purposes: On one hand, they are needed over the long term so that the American government can succeed in achieving the objectives of its economic rescue plans. But on the other hand, its creditors, with China on top loaning the U.S more than 800 billion dollars, fear the possible devaluation of their loans' purchasing value. For this reason, they are stressing the need for United States to curb the devaluation of its currency, while the latter is insisting that China allow its currency to increase in value, in order for Chinese products to become no longer competitive with American products both globally and locally.
