China, India urge stability of reserve currencies

BRIC nations cooperate to get more attention from G20.

China and India on Thursday urged stability in major reserve currencies and in nations’ macro-economic policies to help cement the global recovery.

“It is of great significance to maintain the stability and continuity of macro-economic policies,” Chinese and Indian finance officials said in a joint statement after a meeting here on Thursday. “Maintaining relative stability of major reserve currencies and fiscal sustainability are also very important.”

Brazil, Russia, China and India, known as the BRIC nations, have stepped up cooperation to ensure that the interests of developing nations are taken into account at the Group of 20, which holds a meeting in Seoul in November. In the past year, the euro has dropped 10 per cent to $1.2829, while the yen has climbed 9.5 per cent versus the dollar to 84.24 per dollar.

“China and India are both big developing countries and both economies rely heavily on exports, so stability in major global currencies, mainly the dollar, euro and yen, will have significant impact on the two countries,” said Zhao Qingming, a Beijing-based financial analyst at China Construction Bank Corp., the nation’s second-largest lender by market value.

Zhang Ping, the head of China’s top economic planning agency, the National Development and Reform Commission, said last month that volatilities in major currencies and commodity prices remain risks to the global recovery. Government economists including Ba Shusong from the State Council’s Development and Research Center have warned US dollar volatility might affect the value of China’s $2.45 trillion foreign-exchange reserves.

China’s concerns
China’s central bank Governor Zhou Xiaochuan last year advocated a greater use of International Monetary Fund Special Drawing Rights in reserves. The rights are a unit of account, based on a basket of currencies. Russian President Dmitry Medvedev in June called for a greater number of reserve currencies in the global financial system. French President Nicolas Sarkozy said in Paris on August 25 that G-20 leaders should debate the “dominance” of one currency, the US dollar.

China and India also agreed on the need for “some Asian economies” to gradually remove monetary policies designed to address the global financial crisis, citing signs of overheating and inflationary pressure, according to the statement.

Policymakers should be wary of “possible capital-flow disorders” resulting from those adjustments, the statement said. China and India previously had three rounds of the so-called “financial dialogue” under the same framework in 2006, 2007 and 2009.