China has no plans to raise its proposal for a new global currency to replace the dollar at the G8 meeting this week but is willing to discuss it, a top Chinese diplomat said, as Chinese President Hu Jintao (胡錦濤) left for Italy yesterday.
China is not one of the G8 major economies, but is attending the meeting in the Italian city of L’Aquila as part of a group of five large developing countries.
Beijing called in March for the creation of a new currency, possibly based on the IMF’s Special Drawing Rights, created in the 1960s and used as the monetary standard for dealings between the fund and member governments.
“This international financial crisis has fully exposed the weaknesses and loopholes in the international monetary system,” Deputy Chinese Foreign Minister He Yafei (何亞非) said at a briefing last week. “If this issue is raised by leaders during the meeting, it is natural, because we are all discussing how to respond to the international financial crisis and promote recovery.”
He said Chinese officials have no plans to raise the issue but will discuss it if others raise it.
As the talks have neared, China and Russia have stepped up calls for a rethink of how global currency reserves are composed and managed, underlining a power shift to emerging markets from the developed nations that spawned the financial crisis.
“There should be a system to maintain the stability of the major reserve currencies,” former Chinese vice premier Zeng Peiyan (曾培炎) said in a speech in Beijing on Friday, highlighting China’s concerns about a global financial system dominated by the dollar.
Fiscal and current-account deficits must be supervised as “your currency is likely to become my problem,” said Zeng, who is now the head of a research center under the government’s top economic planning agency.
The People’s Bank of China said on June 26 that the IMF should manage more of members’ reserves.
Russian President Dmitry Medvedev has repeatedly called for creating a mix of regional reserve currencies as part of the drive to address the global financial crisis, while questioning the dollar’s future as a global reserve currency. Russia’s proposals for the G20 major developed and developing nations summit in London in April included the creation of a supranational currency.
“We will resume” talks on the supranational currency proposal at the G8 summit in L’Aquila from Wednesday through Friday, Medvedev aide Sergei Prikhodko told reporters in Moscow on Friday.
Meanwhile, Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, said he was urging the government to diversify its US$264.6 billion foreign-exchange reserves and hold fewer dollars.
“The major part of Indian reserves are in dollars — that is something that’s a problem for us,” Tendulkar, chairman of the Prime Minister’s Economic Advisory Council, said in an interview on Friday in Aix en Provence, France, where he was attending an economic conference.
Tendulkar said that big dollar holders face a “prisoner’s dilemma” in terms of managing their holdings.
“That’s why I’m telling them to do this,” he said.
He also said that world currencies need to adjust to help unwind trade imbalances that have contributed to the global financial crisis.
“The major imbalances which led to the current situation, the current account surpluses and deficits, have to be addressed,” he said. “Currency adjustment is one thing that suggests itself.”
For all the complaints about the dollar, emerging markets such as India remain dependent on the currency of the US, the world’s largest economy and a US$2.5 trillion export market. The IMF said last Tuesday that the share of dollars in global foreign-exchange reserves increased to 65 percent in the first three months of this year, the highest since 2007.
Tendulkar said that the matter needs to be taken up in international talks and that it emphasizes the need for those talks to go beyond the traditional G8.
“They can meet if they want to,” he said. “The G20 has a wider role, has representation of the countries that are likely to lead the recovery process.”
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