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| China seeks 'stable' dollar, monetary diversification |
| Bloomberg / Jul 03, 2009, 00:24 IST |
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China, the largest holder of foreign currency reserves, renewed its call for a stable dollar and damped speculation that the nation is seeking talks on a new international currency at next week’s Group of Eight (G-8) meeting.
“We hope that as the main reserve currency, the exchange rate of the US dollar will be stable,” Vice Foreign Minister He Yafei told reporters in Beijing today.
The official said he’s “not aware” of China pushing to put the subject on the G-8 agenda.
The dollar strengthened as He’s comments eased concern that China plans to diversify its $1.95 trillion of currency reserves.
Central bank Governor Zhou Xiaochuan called in March for the creation of a “super-sovereign” currency, after Premier Wen Jiabao voiced concern that a weakening dollar would erode the value of the nation’s American assets.
“The magnitude of China’s foreign-exchange holdings limits its ability to move out of the dollar very quickly without shooting itself in the foot,” said David Cohen, an economist with Action Economics in Singapore. “Finding alternatives is a long-term goal.”
The dollar climbed to $1.4094 per euro as of 5:53 p.m. in Tokyo from $1.4142 in New York yesterday. It was at 96.68 yen from 96.65.
The dollar declined beyond $1.42 versus the euro yesterday a news report, citing G-8 sources, said China asked to debate proposals for a new global reserve currency at the summit.
‘Nothing strange’
“We hope that in future, the international monetary system will be diversified and I believe that this is the aspiration of the entire international community,” He said.
“If this issue is raised by leaders during the meeting, it is nothing strange. It is natural because we are all discussing how to respond to the international crisis.”
Japanese Vice Finance Minister Kazuyuki Sugimoto said in Tokyo today that he’s unaware whether the G-8 leaders will discuss a replacement for the dollar.
In a separate Chinese statement today, the central bank said it will let companies settle cross-border trade in yuan, seeking to reduce the reliance of importers and exporters on the dollar.
On June 26, The People’s Bank of China renewed its call for a new global currency and said the International Monetary Fund (IMF) should manage more of members’ foreign-exchange reserves.
Currency ‘deficiencies’
“To avoid the inherent deficiencies of using sovereign currencies for reserves, there’s a need to create an international reserve currency that’s delinked from sovereign nations,” the central bank said in a report.
The IMF should expand the functions of its unit of account, Special Drawing Rights (SDRs), the report said.
China is the biggest foreign holder of Treasuries, with $763.5 billion as of April. US President Barack Obama is relying on the Asian nation to keep making purchases as his administration sells record amounts of debt to fund a $787 billion stimulus package.
At the end of 2008, the dollar accounted for 64 per cent of global central bank reserves, down from 73 per cent in 2001, according to the IMF.
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