The other day I wrote about a new diplomatic initiative being tossed about by China and the U.S. that allegedly will replace the Strategic Economic Dialogue.

I mentioned at that time that this might not be such a bad idea, seeing as how the SED on the U.S. side was led by the Secretary of the Treasury. The current SecTreas, Tim Geithner, has a lot on his plate, and has already chalked up an uneven track record with respect to China.

Let’s take a quick look back. Early on in the Obama administration (i.e. several weeks ago), Geithner stated publicly that China was a currency manipulator. He subsequently had to backtrack, which made him (and Obama) look weak.

Since that time, Geithner has been very solicitous when it comes to China, leading me to believe that he was told to play nice. This is great for Beijing, which now has Geithner on record as a China basher (sort of).

China can now play off of this, knowing that they can probably push the SecTreas a bit more than other folks, guessing that he will be reluctant to come out publicly against a China position and be accused of having an anti-China bias.

Not so good. Fast forward to the past few days and the furor over Zhou Xiaochuan’s statements about the dollar as a reserve currency (see my earlier post here). Zhou has suggested that the dollar should not be the world’s reserve currency, but as I suggested, this probably should not be taken all that seriously.

Geithner’s response to this talk? Well, let’s see. First, he is the SecTreas and is responsible to some degree in ensuring that folks have confidence in the dollar. So he certainly doesn’t want to talk it down. Second, he’s got this weird thing going on with China now, so best not to make headlines on this issue.

So when asked about Zhou’s proposal, he confidently sidesteps the question, right? As Ben Smith of The Politico tells us, not so much.

Geithner, at the Council on Foreign Relations, said the U.S. is “open” to a headline-grabbing proposal by the governor of the China’s central bank, which was widely reported as being a call for a new global currency to replace the dollar, but which Geithner described as more modest and “evolutionary.”

“I haven’t read the governor’s proposal. He’s a very thoughtful, very careful distinguished central banker. I generally find him sensible on every issue,” Geithner said, saying that however his interpretation of the proposal was to increase the use of International Monetary Fund’s special drawing rights — shares in the body held by its members — not creating a new currency in the literal sense.

“We’re actually quite open to that suggestion – you should see it as rather evolutionary rather building on the current architecture rather than moving us to global monetary union,” he said.

“The only thing concrete I saw was expanding the use of the [special drawing rights],” Geithner said. “Anything he’s thinking about deserves some consideration.”

The continued use of the dollar as a reserve currency, he added, “depends..on how effective we are in the United States…at getting our fiscal system back to the point where people judge it as sustainable over time.”

President Obama flatly rejected the notion of a new global currency at last night’s press conference.

UPDATE: Evidently sensing a gaffe, moderator Roger Altman told Geithner that it would be “useful” to return to the question, and asked if he foresaw a change in the dollar’s centrality.

“I do not,” Geithner said, adding several forceful promises, including, “We will do what’s necessary to say we’re sustaining confidence in our financial markets.”

Groan. What happened to the dollar the next day? As one would predict (it’s like watching a trainwreck):

As if the dollar didn’t have enough problems, Timothy Geithner took China’s bait yesterday and said he was “quite open” to its suggestion this week to displace the greenback with an “international reserve currency.” The dollar promptly fell and stocks followed, before the Treasury Secretary re-emerged to say “the dollar remains the world’s dominant reserve currency. I think that’s likely to continue for a long time.”

Did Geithner say anything wrong? No, of course not. In fact, his comments were thoughtful and intelligent. But that’s not the point. This is politics, and you better make sure that everything you say tracks perfectly with administration policy and the specific strategy you want to implement. Coming out with an unscripted, albeit perfectly reasonable, comment like that makes his boss look bad.

The next time the word “China” comes up in a conversation, Geithner should just pretend he didn’t hear it.