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G8 Summit talks likely to turn to dollar

(China Daily)
Updated: 2009-07-03 07:31

China would like to see a diversification of the international currency system in the future and believes it would be "normal" if the issue came up at the "8+5 summit" involving the Group of Eight (G8) and emerging powers, Deputy Foreign Minister He Yafei said Thursday.

But He, who is in charge of China's G8 meeting preparations, said he was not aware of Beijing asking for a discussion of reserve currencies at the high-level meetings in Italy.

He was responding to a Reuters report Thursday that quoted G8 sources as saying China wanted to talk about a new global reserve currency.

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That news pushed the dollar down to a three-week low.

The dollar is particularly sensitive to comments from China because bankers estimate China holds as much as 70 percent of its $1.95 trillion of official currency reserves in US dollars.

"I have not heard that China has this request," He said. "I have not heard of China raising this for discussion."

The dollar rebounded after He's comments. He also said the dollar was the main global reserve currency and that he hoped it would be stable.

But he added that Beijing thought the reserve currency issue may come up at the three-day summit.

"The financial crisis has fully exposed some shortcomings in the international currency system," he said. "Of course we hope that in the future, the international currency system can diversify."

"I think this is an objective that the international community naturally wants to realize, and, as I just said, if in the meetings some leader raises this issue for discussion, that would be normal," he said.

China's central bank last week renewed its call for the creation of a super-sovereign reserve currency to reduce the dollar's global domination - which the bank said contributed to the financial crisis.

The People's Bank of China caused a stir when it first made the suggestion, in March, that the International Monetary Fund's Special Drawing Right (SDR) could eventually displace the dollar as the principal reserve currency.

The SDR is an international reserve asset allocated to IMF members. Its exchange rate is determined by a basket of currencies, including the dollar, euro, sterling and yen.

"At present, the US dollar is the main reserve currency," He said. "We, of course, hope the exchange rate of the main reserve currency maintains stability."

The International Monetary Fund this week unveiled its long-awaited plan for issuing debt denominated in SDRs. China has committed to purchase up to $50 billion of the notes, more than any other country.

Combating the global financial crisis tops President Hu Jintao's issue list. He is expected to attend the upcoming 8+5 summit, the Foreign Ministry said.

The meetings, scheduled to take place between Wednesday and Friday next week in the central Italian city of L'Aquila, will focus on the global downturn and participants hope the session will boost cooperation between industrialized and developing countries, He said.

"We expect the 8+5 meeting will give a strong signal for further cooperation on tackling the financial crisis on the basis of the G20 summits," He said, while calling for more input from developing countries in international affairs.

Be it G20, G8, or G5, "any system must be representative", he said, noting that the G8 tends to be lacking in such representation.

Nations are also expected to talk about climate change, energy and food security, international trade and development issues at the summit.

"A group of some 200 Chinese businessmen will accompany Hu on his trip to Italy in a bid to promote trade and investment," He said.

China Daily - Reuters