Medvedev calls for world currency at G-8

[christo-f]

so i guess this thread is officially burnt out.

12oz's only chav has won, according to himself.

 

Haha, I don't even know what a chav is, so I guess you can call me a chav all you like, mate!

 

Mate, you don't even talk sense and you know fuck all. That's why I don't want to discuss anything with you, especially if you think a discussion like this is a competition that some one wins.

[lord_casek]

Oh dude, you made claims that had no substance and you could provide nothing to support your claims.

 

I also spend a lot of my professional time paying close attention to this issue in fairly intricate detail, I'm 100% confident in what I say.

 

 

All good, man.

[christo-f]

Yeah, it's pretty good for me to discuss this stuff with you as well because it makes me go back and refresh myself on stuff and also alerts me to some stuff I wasn't aware of, case in point is Sarkozy's comments last week. Still not sure WTF that's all about, will make time to track it down today and I'll forward what I find to you.

[lord_casek]

Yeah, it's pretty good for me to discuss this stuff with you as well because it makes me go back and refresh myself on stuff and also alerts me to some stuff I wasn't aware of, case in point is Sarkozy's comments last week. Still not sure WTF that's all about, will make time to track it down today and I'll forward what I find to you.

 

 

Just like finding images in clouds, man. One of us can see a penguin, the other a bear.

 

Looking forward to seeing what you come up with.

 

Btw: Forgot to answer you about NAU. The SPP signed in '05 talks a bit about a North American Currency.

[christo-f]

The Chinese know this just as much as the Russians do.

 

 

No alternative to euro, dollar-Russia dep c.bank head

Wed Jul 15, 2009 4:35am EDT

 

MOSCOW, July 15 (Reuters) - No currency can displace the euro and dollar as a reserve currency in the foreseeable future, deputy central bank chairman Gennady Melikyan said on Wednesday.

 

"The euro and dollar will dominate for now," Melikyan told reporters.

 

Melikyan said Russian banks saw slowing growth in non-performing loans loans last month. They rose 5.9 percent to 4.8 percent of the total loan portfolio in June, excluding Russia's top lender, state owned Sberbank (SBER03.MM), he said.

[boner9000]

China and the dollar

Yuan small step

Jul 9th 2009 | HONG KONG

From The Economist print edition

 

The dollar’s role as the world’s main reserve currency is being challenged

 

Illustration by S. Kambayashi

 

THE Chinese used to call dollars mei jin, which means “American gold”. Buying black-market dollars was considered the safest way to protect one’s savings. Yet in June when Tim Geithner, America’s treasury secretary, told students at Peking University that China’s official holdings of Treasury bonds were safe, the audience laughed. Faith in the greenback is waning.

 

In the build-up to the annual summit of G8 countries, which began on July 8th in the Italian city of L’Aquila, officials in China, Russia and India all called for an end to the dollar’s dominance in the international monetary system. Dmitry Medvedev, Russia’s president, declared on July 5th that the dollar system is “flawed”; his central bank has been reducing its dollar holdings. The People’s Bank of China (PBOC), China’s central bank, repeated its call for a new global reserve currency in June and is now taking the first steps towards turning the yuan into a global currency.

 

Beijing is particularly influential in this debate. The dollar accounts for 65% of the world’s foreign-exchange reserves (see chart), only slightly less than a decade ago and well ahead of the euro’s 26% share. Three-quarters of all reserves are in the hands of emerging economies; China alone holds one-third of the global stash.

 

 

So China has particular cause to worry that America’s massive printing of money in response to the financial crisis will undermine the value of its dollar reserves. There is much domestic anger about the potential losses China may face as a result of its lending to rich Americans. The government would like to diversify out of dollars: its new purchases of Treasury securities have fallen sharply this year. But any attempt to dump its stock of dollars would risk triggering a plunge in the currency. Instead, officials are mulling two ways out of the “dollar trap”: persuading the world to adopt a new global currency and encouraging the international use of the yuan.

 

In an essay in March, Zhou Xiaochuan, the governor of the PBOC, argued that basing the international financial system on a national currency will tend to exacerbate global imbalances. The dollar’s reserve-currency status let America borrow cheaply, causing the country’s credit and housing bubbles to persist for longer than they otherwise would have. Mr Zhou proposed that the world should replace the dollar with a global reserve currency, the SDR (Special Drawing Rights). Created by the IMF in 1969, and now based on the weighted average of the dollar, euro, yen and pound, the SDR was designed as a reserve currency but never took off. SDRs today add up to less than 1% of total reserves.

 

 

Under Mr Zhou’s plan the amount of SDRs would be hugely increased and the basket expanded to include other currencies, notably the yuan. Mr Zhou also proposes an SDR-denominated fund, managed by the IMF, into which dollar reserves could be exchanged for SDRs. Countries could then reduce their dollar exposure without pushing down the dollar (although it is unclear who would bear any exchange-rate losses).

 

Brazil, India and Russia have backed Mr Zhou’s proposal. But the SDR is unlikely to become a reserve currency any time soon. It would take years to develop SDR money markets that are liquid enough to be a reserve asset. Although the IMF’s executive board approved the first issuance of SDR-denominated bonds on July 1st, as the fund attempts to boost its resources, the bonds can only be bought and traded by central banks, not by private investors.

 

China’s alternative ploy is to promote the yuan’s use in international trade and finance. Starting on July 6th selected firms in five Chinese cities are now allowed to use yuan to settle transactions with businesses in Hong Kong, Macau and ASEAN countries. Foreign banks will be able to buy or borrow yuan from mainland lenders to finance such trade. In June Russia and China agreed to expand the use of their currencies in bilateral trade; Brazil and China are discussing a similar idea.

 

The PBOC has also signed currency-swap agreements with Argentina, Belarus, Hong Kong, Indonesia, Malaysia and South Korea. The central bank will make yuan available to pay for imports from China if these countries are short of foreign exchange. In another recent move, Hong Kong banks are now allowed to issue yuan-denominated bonds, a step towards building an offshore yuan market.

 

Qu Hongbin, an economist at HSBC, predicts that by 2012 nearly $2 trillion of annual trade (over 40% of China’s total) could be settled in yuan, making it one of the top three currencies in global trade. Others reckon this is too optimistic. Although Chinese firms are keen to invoice in yuan, trading partners will be more reluctant. There is no real forward market for the yuan, making it hard to hedge risk, and it is not accepted by most other countries.

 

The yuan will be used more widely for trade over the next decade but the idea that the yuan can become a reserve currency in the near future is ridiculous, says Arthur Kroeber at Dragonomics, a research firm based in Beijing. Not only does China lack the economic and political track record required to underpin a reserve currency, but its currency is not fully convertible. China would need to scrap capital controls so foreigners could invest in yuan assets and then freely repatriate their capital and income, but the government is wary of moving too quickly. A reserve currency also requires a deep and liquid bond market, free from government interference. This, says Mr Kroeber, implies a big retreat from China’s state-led model of credit allocation.

 

Even if China immediately scrapped capital controls the yuan would be unlikely to challenge the dollar as a reserve currency for years. The dollar did not replace sterling until half a century after America’s economy had overtaken Britain’s. America’s GDP is around three times as big as China’s, and its total trade is still larger.

 

Both the SDR plan and measures to internationalise the yuan also seem to assume that China’s problem is simply that too many of its reserves are in dollars. But China’s real problem is that it is running a persistent current-account surplus; in order to keep the yuan closely tied to the dollar it has to keep buying more dollar assets. If China really wants to reduce its exposure to the greenback it must allow the yuan to rise. It would incur a loss on its existing reserves but stem future losses. But so long as China maintains its current exchange-rate policy, it is, ironically, helping keep the dollar dominant.

[christo-f]

And China won't allow the Yuan to float freely because it would immediately appreciate by 30% absolutely decimating much of China's export industry that is the power of the Chinese economy and that runs on thin profit margins already.

 

SDRs are the best bet for something like this. China and Russia have already sunk billions into WB bonds recently and I think that Brazil was working towards doing the same thing. Another reason why Russia, India, Brazil and a few other developing economies are supporting this idea is because the there is also the push for developing economies to have a greater say in WB policies and the balance of voting power in the WB will be at least partially rated by SDR ownership.

 

That means it's not so much an attack on US economic policy/regulations for some but more so an attempt to gain more power for themselves in the global economy.

[MIDONE]

I know this thread is about currency, but does anyone have any thoughts about global precession.

[boner9000]

If you are talking about precession in the astrological sense, you are in the wrong thread. If you meant recession, then my thoughts have drifted towards de-evolution :)

[christo-f]

Yes, I have thoughts of global recession but I've been seeing a therapist and have found a good support group. I still have my bad days, but mostly I am leading a happy life now looking forward with only thoughts of growth.

 

I'm getting better.

[ANGELDUST]

JESUS DIED FOR YOUR SINS

[christo-f]

Well that was a bit silly, wasn't it? According to his dad I'm still going to hell for my sins, so Jesus died for nothing.

 

Dumb move on his part....

[christo-f]

Not particularly related to increasing the use of Yuan to settle international trade, in order to sap the power of the Dollar, but it is a in interesting move that concerns the way China handles its forex. Possibly has a little more to do with China looking to increase investment on assets overseas whilst there are bargains out there due to the economic climate.

 

THis is a little more related to the conversation about standard currencies, etc. in that instead of just buying/saving USD China is also looking at diversifying investment towards actual assets rather than just basic currency. This also helps CHina to regulate market prices for certain commodities (see the recent failed Chinalco buyout of Rio Tinto for an example).

 

China simplifies rules on forex use to boost outbound investment

+ -

09:01, July 16, 2009

 

People's Daily

 

 

China's foreign exchange regulator said Wednesday it would loosen its controls on overseas investment procedures and foreign exchange management of domestic companies to boost outbound investment.

 

In a statement on its website, the State Administration of Foreign Exchange said a regulation, which will take effect on Aug.1, would simplify the examination and approval procedures for domestic companies with overseas investment plans.

 

Domestic companies would be allowed to register the source of their foreign exchange financing after their investment overseas instead of obtaining approval beforehand, according to the regulation.

 

The regulation would also allow domestic enterprises to finance overseas investment with domestic foreign exchange loans, purchases of foreign exchange with yuan, their own foreign currency funds and profits gained abroad.

 

Domestic companies would be able to transfer funds abroad before their overseas projects were established, after gaining approval from SAFE. The ceiling rate was 15 percent of the total project investment.

 

The SAFE would also improve supervision over overseas investment and step up supervision and management over the foreign exchange used in China's direct investment overseas.

 

The draft of the regulation had been posted on the SAFE website to solicit public opinion from May to June.

 

The regulation was aimed at offering more freedom to domestic companies on their forex use, investment and financing and to encourage them to "go out of China", said Liu Guangxi, director of the SAFE's capital account management department.

 

"Successful overseas investment could help domestic companies to expand their markets, providing solutions to overcapacity and weak internal demand," said Zhang Qizuo, vice president of the Sichuan-based Chengdu University.

 

The regulation would increase outbound investment and encourage more foreign exchange uses, so as to relieve pressure brought by China's rapid expansion of forex reserves, said Liu.

 

China's foreign exchange reserves hit a record 2.13 trillion U.S. dollars at the end of June, the People's Bank of China said on its website Wednesday.

[MIDONE]

I was talking about PRECESSION, I did not see any threads about the subject. I was just curious if cristo-f had any thoughts on the subject. I really dont chat much on sites like this, but I do love graffitti.

[russell jones]

Yeah, I know, I'm just trying to point out that it is not the Fed's responsibility to create and enact the legislation that the other nations are looking for in the US.

 

They want stronger regulation on private financial institution and lending practices. This has nothing to do with the Fed's role in the economy. PEople just don't want to have a re-occurrence of the sub-prime issue that led to the current financial crisis (which is slowly working itself out).

 

Personally, I don't care if there is oversight or not, I'm not arguing that point either way. I'm just trying to make a few points, which I will list below:

 

 

 

 

1. China and Russia are calling for a new global standard currency for political reasons. They are using the recent issues with the US money markets (sub-prime lending that caused a global melt down) and the subsequent volatility in the dollar as their reasoning.

 

2. Nobody gives a shit what Russia or China thinks as their economies are totally fucked.

 

3. The US, UK, EU are NOT calling for a new global standard currency and no evidence has been shown to the contrary. France, I'll have to hold out on that one either way as I have not seen the full context of Sarkozy's remarks from last Thursday.

 

4. Other states are looking to diversify their currency reserves as they realise that just banking in the US gives no diversification, which any idiot investor can tell you is bad practice. This does NOT equate for wanting a new standard however it may, over DECADES drift the world to using more than one standard or going with WB SDR's and so on.

 

5. The US Fed and inflation does not play a part in this (see point 6 for further clarification) it is an issue of legislation which comes from the government and concerns regulating the behaviour of private financial institutions on lending behaviour and risk assessment.

 

6. THE US ECONOMY IS NOT FUCKED AND YOUR COUNTRY IS NOT DOOMED..., FFS!! IT doesn't matter whether the Fed is an illegal institution of fire spitting devils, your inflation or how much your dollar can buy doesn't matter. What matters is how strong the US economy is to the rest of the world. What matters is how much strategic depth and industrial output the US has and how willing other nations are to invest in your economy which is not only buying your debt but also how much foreign direct and indirect investment flows in to your country and businesses.

 

 

 

 

 

 

Now, a few facts about the US economy and strategic advantage:

 

The US economy is at 14 trillion, the next closets one is about 7 trillion and that economy is absolutely fucked and has been teetering on the brink of disaster since world war fucking 2.

 

The US is the number one destination for both foreign direct and foreign indirect investment.

 

The US is still BY A MASSIVE FUCKING GINORMOUS margin the number one destination for investment in national debt.

 

The US is still the deepest, strongest and largest industrial base IN THE WORLD.

 

The US has one of the best square mile of arable land per capita in the developed world (might be best ratio, not sure).

 

The US is one of the world's largest oil and gas producing nations.

 

The US is a net food exporter.

 

The US controls the world's oceans AND THAT MEANS THE US CONTROLS WORLD TRADE!!

 

The US controls space and is so far ahead of space tech/exploration that it is unlikely anyone will catch up for 100 years+++

 

The US has the most dominant army ever seen and it is unlikely that they would lose a war even if Russia, China, India, the UK, France, Germany, Australia, Canada and Iran joined forces to fight against you.

 

 

 

 

 

WHAT.THE.FUCK have you cry babies got to worry about?

 

You are so far ahead in every way that you are unbeatable for 100+ years yet all you want to do is cry doom and fucking gloom. Fair dinkum, you guys are the biggest fucking whingers I've come across (except for Shai, he's cool. So's Casek, but he's prone to silly assumptions). Every acorn that bumps you on the head is equal to the sky falling.

 

Truly phenomenal how little you people know about yourselves.

 

I think I'm done here..., unless Casek wants to post some more articles I can pick apart :p

 

[christo-f]

I was talking about PRECESSION, I did not see any threads about the subject. I was just curious if cristo-f had any thoughts on the subject. I really dont chat much on sites like this, but I do love graffitti.

 

Sorry mate, I actually have no idea what precession is!

 

I'm also not an economist, I just pay attention to strategic issues, this being one of them.

[christo-f]

Chinese forex kitty aids US moves

(Agencies)

Updated: 2009-07-17 08:03

 

China's foreign exchange reserves are surging again, helping the Obama administration sell unprecedented amounts of debt as it seeks to drag the world's biggest economy out of a recession.

 

 

Stockpiles of currency rose by a record $178 billion in the second quarter to top $2 trillion for the first time, the People's Bank of China said on Wednesday. The amount is close to two-thirds the size of China's economy and the equivalent of Italy's gross domestic product in 2006.

 

The cash holdings are growing as the central bank sells its currency, the yuan, to prevent an appreciation that would make the country's exports more expensive.

"People are talking about whether the Chinese may actually one day dump the dollar and Treasuries because of the problem in the US, but they are missing the point," said Stephen Jen, head of macroeconomics and currencies in London at BlueGold Capital LLP, which manages $1.1 billion. "The reserves are so big because China needs to keep the exchange rate stable for its exports. Therefore, they have to keep buying dollar assets."

The need to temper gains in its currency led China, the biggest overseas holder of Treasuries, to more than double its holdings of US government notes and bonds in three years to $763.5 billion in April, according to US Treasury data. The amount was equivalent to 38 percent of its reserves at the time.

 

"China's reserves will allow the US to run a higher fiscal deficit than other nations," said Bilal Hafeez, the London-based global head of currency strategy at Deutsche Bank AG.

 

"As the Chinese were becoming more vocal in regard to the need to move away from the US dollar, they were in actual fact buying more dollars than ever," said Derek Halpenny, European head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd.

 

The dollar's share of global reserves increased to 65 percent in the first three months of this year, the most since 2007, according to the International Monetary Fund.

 

China is trying to reduce its reliance on the US currency in other ways. It signed 650 billion yuan of currency swaps since December with nations from Argentina to Belarus and is encouraging trading partners to use the yuan to settle cross-border trade.

The government is considering purchasing $50 billion of the IMF's bonds after the Group of 20 leaders on April 2 gave the international lender approval to boost its war chest by $500 billion.

China can afford that and more because its reserves will increase by more than $200 billion annually in coming years, said Wang Tao, an economist with UBS AG in Beijing. Increasing its strategic oil reserve to 90 days of imports, the nation's target for 2020, would take another $50 billion, Wang said.

 

China this week relaxed curbs on overseas investment by local businesses, allowing more funds to flow abroad starting Aug 1.

[christo-f]

Some interesting quotes from that article:

 

"As the Chinese were becoming more vocal in regard to the need to move away from the US dollar, they were in actual fact buying more dollars than ever," said Derek Halpenny, European head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd.

 

The cash holdings are growing as the central bank sells its currency, the yuan, to prevent an appreciation that would make the country's exports more expensive.

"People are talking about whether the Chinese may actually one day dump the dollar and Treasuries because of the problem in the US, but they are missing the point," said Stephen Jen, head of macroeconomics and currencies in London at BlueGold Capital LLP, which manages $1.1 billion. "The reserves are so big because China needs to keep the exchange rate stable for its exports. Therefore, they have to keep buying dollar assets."

 

 

 

Makes sense, buy the dollar, keep demand up which keeps exchange rates for the Yuan favourable for Chinese exports in a time when they are really struggling. Even if they weren't struggling, it still needs to keep them up as China is an export economy that requires around 8% growth per year, according to the Chinese Communist PArty to ensure critical levels of employment.

 

So, the bottom line here is that China is actually dependent on the US dollar staying strong for the time being and is trapped in to buying US debt until it can create a sustainable and/or viable domestic economy to the point that exchange rates aren't so critical.

[lord_casek]

Christo- I missed what you were saying about space (being controlled by the U.S.) we've actually got some competition now. China seems to be making large strides, so does Russia.

With our aid, of course. But you can't ignore them.

 

I just want us to go back to the moon. I think that would be fucking awesome.

 

Not trying to argue about that, just wanted to put it out there and see what you think about it.

[christo-f]

Sure, Russia has always been a viable competitor and China is starting to move up. But remember that the first man in to space was how many decades ago? CHina just put their first man in to space within the last year or so. The US has a massive lead on the Chinese and also has a space budget that eclipses the Russian budget by a mile.

 

A lot of the Russian budget runs on the proceeds of launching satellites for second party states )and space tourism that costs hundreds of millions), the US runs its space program off the mountains of taxable disposable income the country has, just as an example of the difference in the capacity of each program.

 

The US is currently planning to go back to the moon in order to develop a launch program for Mars exploration.

[R@ndomH3ro]

Russia and China space program??? hhahahaha

 

those assholes are worried about just getting into orbit

we are fucking already going to mars

 

chumps!

[christo-f]

Dude, the Chinese are still figuring booster reliability and the Russians are still figuring the economics to fund their excuse for a space program (have they even done a fucking space walk yet???).

 

THe US is looking at expanding to the rest of the SOLAR SYSTEM.

 

Light years ahead of the competition......

[christo-f]

So, about that new global currency that everyone seemed to want 5 minutes ago.....

 

 

 

China Returns to Back U.S. Dollar

Chosun Ilbo

 

 

 

After rattling the U.S. earlier this year by advocating a new key currency that could replace the mighty U.S. dollar, China has returned to rally behind the greenback. At the recent G8 summit China took a step back from pushing for a replacement currency, saying the issue was not Beijing's official stance. New data also shows China acquired an enormous amount of U.S. government notes and bonds in May. The state-run China Daily newspaper reported on Sunday that China's holdings of U.S. Treasuries totaled US$801.5 billion as of the end of May, up $38 billion from April and the first time the total has exceeded $800 billion. The monthly increase was also the largest since $65.9 billion in October of last year.

 

Since the global financial crisis erupted in the second half of last year, China has been gradually reducing its purchasing of U.S. Treasuries. Last April saw the first time in 11 months that its total holdings of U.S. Treasuries actually declined compared to the previous month, falling $4.4 billion.

 

Experts say China has renewed its interest in U.S. Treasuries because it is difficult to find a replacement for the dollar and more attractive investments are still hard to come by. Another factor is apparent signs of recovery in the U.S. economy.

 

China's foreign exchange reserves rose only $7.7 billion during the first quarter, but in the second quarter they leaped by $177.9 billion. The total amount now stands at $2.13 trillion. As China's economic recovery becomes more evident, foreign investors are flocking to the Asian country. But for China, nothing offers the scale and security of the U.S. Treasury. Investing in natural resources in other countries or acquiring foreign businesses are mid to long-term investments and are not effective in resolving the problem of excess dollars over the short-term.

 

"Although the U.S. dollar is showing signs of fatigue, it is difficult over the short-term to find a channel of investment as stable as the U.S. Treasury market," Ding Zhijie, a professor at China's University of International Business and Economics, said in an interview with state-run Xinhua News Agency. Yang Pyoung-seob, head of the Beijing office of the Korea Institute for International Economic Policy, said, "Another factor that appears to have played a role is the relatively faster rate of recovery of the U.S. economy compared to Europe and Japan." Yang added, "China's foreign exchange reserves have surged, so Beijing's purchases of U.S. Treasuries should continue."

At the same time, calls within China to replace the dollar as the key currency have abated. The reasoning seems to be that the value of China's dollar holdings may decline if Beijing joins the "anti-dollar" camp, which was formed by the European Union, Russia and India following the G20 global financial summit in April.

 

China's Vice Minister of Foreign Affairs He Yafei, who accompanied President Hu Jin-tao to the G8 summit, met with reporters in Italy on July 5 and said the dollar "will maintain its position as the key currency for years to come." Calls to create a new super-currency are "not the official position of the Chinese government," he added. One diplomatic source in China said, "The Chinese government, which sought to rattle the dollar's prominence, has rejoined the 'dollar bloc' that includes Japan and the U.S." The decision, the official added, stems from the view that dollar instability is against China's interests.

 

 

 

 

 

As I said previously these calls were made for political purposes, no one ever believed that a new currency would emerge. The US is too strong and will be for decades to come yet. And EVERYONE who makes the real decisions knows that.

[christo-f]

Nation to get $9b in SDRs

By Si Tingting (China Daily)

Updated: 2009-07-22 08:05

 

China is set to receive about $9 billion from the International Monetary Fund's Special Drawing Rights (SDRs) - the highest among all emerging nations - to boost its economy.

 

However, the nation is more concerned about whether it would get a better say in the running of the multilateral body to justify its growing economic weight, experts said.

 

Under the new SDR allocation, the US will receive about $42.6 billion, Japan about $15 billion, China $9 billion, Russia $6.6 billion, India $4.5 billion and Brazil $3 billion.

This is part of the $250 billion allocation of SDRs by the IMF to provide liquidity to the global economic system by supplementing its 186 member countries' foreign exchange reserves. The funds would be available at the end of August.

 

The SDRs are disbursed in proportion to each member's IMF quota and can be exchanged for hard currency such as the dollar, yen, euro or pound.

 

Although China would receive more SDRs compared with other BRIC countries, its share falls far short of those of the US and Japan.

 

"The allocation might be important for some poorer economies, but not China, which now has a massive $2.13-trillion foreign exchange reserve," said Guo Tianyong, director of the Research Center of the Chinese Banking Industry, Central University of Finance and Economics.

 

"China, which would surpass Japan in terms of economic output, will soon top Japan as the world's second biggest economy, and it deserves a bigger share of the IMF quota, equal to its economic position in the world," he said, adding that China thought highly of the IMF's growing prominence in global financial transactions

[christo-f]

And this would be the Sarkozy comments that we spoke about before. Not sure what France gets out of that. Also, don't think that this is the EU speaking, it was just Sarkozy when he was no longer EU Chair. Right now it's Sweden and before that it was Czech. Plus, when a country is chair of the EU they more work towards a national agenda than EU agenda.

 

China demands currency reform, France backs debate

09 Jul 2009 21:53:54 GMT

Source: Reuters

 

L'AQUILA, Italy, July 9 (Reuters) - China called on Thursday for reform of the reserve currency system at a meeting of world leaders in one of its most direct attacks on the dollar's global dominance.

Chinese State Councillor Dai Bingguo did not specifically name the dollar at talks between the Group of Eight rich nations and G5 emerging powers, but he was unequivocal in calling for the world to diversify the reserve currency system and aim at relatively stable exchange rates.

France also unexpectedly called for a currency discussion and moving toward a "multimonetary" system, though Britain warned any debate should be reserved for the long term to avoid destabilizing markets in the midst of a global recession.

China's ideas for changing the system had previously been mentioned in reports by its central bank, but had never been voiced in a speech by such a high-ranking political leader.

"We should have a better system for reserve currency issuance and regulation so that we can maintain relative stability of major reserve currencies' exchange rates and promote a diversified and rational international reserve currency system," Dai told the summit in Italy, according to a statement read by Foreign Ministry spokesman Ma Zhaoxu.

Dai made his statement to a meeting including British Prime Minister Gordon Brown, U.S. President Barack Obama and the leaders of Japan and the European Union, whose currencies are often held as part of countries' foreign exchange reserves.

There is no question on whether the comments represented those of of China's top leadership, the spokesman said.

"China's position on reserve currencies has had different interpretations, but I can tell you that what I have just quoted is the most authoritative standpoint of the Chinese government," he said.

Foreign exchange markets were unmoved by Dai's comments, with investors focused on upbeat signals for the U.S. economy and signs Germany's Bundesbank may buy corporate bonds. [FRX/]

DESTABILIZATION RISK

French President Nicolas Sarkozy later gave China's concerns a boost by saying he hoped major industrialized and emerging nations would discuss currency systems when the global economy had largely moved beyond the crisis.

"These are complex subjects where the positions have to evolve, but we can't remain based on a single currency," he said.

"We have to ask ourselves: Shouldn't a politically multipolar world correspond to an economically multimonetary world?" Sarkozy said, referring to the dollar.

British Prime Minister Gordon Brown, however, said any discussion of alternative global currencies was best avoided while leaders were focused on pulling the economy out of recession.

"In this present situation as we're trying to get out of a deep recession, I don't want to give the impression that there is some major change about to happen around the corner that suggests that the present arrangements are destabilized," Brown told reporters after talks on the second day of the summit.

Dai was attending the G8 plus G5 meeting in place of Chinese President Hu Jintao, who returned home to monitor developments in the country's northwestern region of Xinjiang after some 156 people were killed in the country's worst ethnic violence in decades. For details, see [iD:nSP465940]

Dai did not mention Special Drawing Rights (SDR), a unit of account used by the International Monetary Fund, which other Chinese officials have said could present a viable alternative to the dollar as a global reserve currency.

The People's Bank of China first suggested in March that the SDR -- effectively a mixture of dollars, euros, sterling and yen -- was better suited than any single country's currency to be a yardstick for global trade and a reliable store of value.

Sources told Reuters that China had pushed for debate about reserve currencies at the summit.

There was no mention of the issue in the draft declaration from the meeting of G8 leaders with the G5 group. The closest it came was to call for the promotion of a stable international financial system.

"We think it's not a discussion that would make sense for heads of state to deal with," said Marco Aurelio Garcia, Brazilian President Luiz Inacio Lula da Silva's top foreign policy advisor after bilateral Brazil-U.S. talks on Thursday.

"It's a discussion of obvious interest for economists," he said.

The question of displacing the dollar as the world's dominant reserve currency is highly sensitive for Beijing. Holding an estimated 70 percent of its $1.95 trillion in official foreign exchange reserves in the dollar, China has in the past been wary of saying anything that would undermine the value of the dollar and its investments.

[christo-f]

Central Bankers Support Dollar Reserve

 

http://online.wsj.com/article/SB10001424052748704124704575062702636935786.html?mod=WSJASIA_hps_LEFTTopWhatNews

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By SUBHADIP SIRCAR

 

MUMBAI -- The use of the International Monetary Fund's Special Drawing Rights facility as an alternative reserve currency to replace the U.S. dollar is remote in the near term, heads of several central banks said Saturday.

 

"The possibility of SDR as a meaningful reserve currency are remote in any reasonable time horizon partly because of the governing structure of the IMF, partly because it doesn't solve the reserve and adjustment problem in our opinion," Mark Carney, governor of the Bank of Canada, said at a panel discussion organized by India's central bank.

 

His Indian counterpart Duvvuri Subbarao echoed his views, calling the plan a "tall order."

 

The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries' official reserves. Its value is based on a basket of four key international currencies, and they can be exchanged for freely usable currencies.

 

Discussions on using SDRs as a potential reserve currency gained momentum when People's Bank of China Governor Zhou Xiaochuan floated the idea of a global currency delinked from sovereign nations. China is the biggest holder of U.S. dollar assets and the greenback's decline has been a source of worry for the Asian nation.

 

The use of SDRs as reserve currency will distribute "exorbitant privilege" to those who hold them, Reserve Bank of Australia Governor Glenn Stevens said.

 

"We have said there may be some use of exploring a substitution account as a one-off reserve diversification mechanism but that would be part of a broader move towards a more flexible global system." Mr. Stevens said. "I would term that as a medium-term conversation."

 

The SDR is currently only a unit of account and the IMF can't be held accountable for it, RBI's Mr. Subbarao said.

 

"The dollar is a dominant currency and I don't think we will decide in a conference of G-20 or the IMF that we will have some other currency," Mr. Subbarao said. "If some other currency or a group of currencies have to replace the dollar, then that has to happen in an organic manner."

 

With a general SDR allocation that took effect on Aug. 28, 2009, and a special allocation on Sept. 9, 2009, the amount of SDRs increased from SDR 21.4 billion to SDR 204.1 billion, equivalent to about $324 billion, according to the IMF. Separately, the RBI's move to buy a large chunk of gold from the IMF was to diversify its reserve portfolio and not a comment on the U.S. dollar, Mr. Subbarao said.

 

India's central bank bought 200 metric tons of gold from the International Monetary Fund in last October.

 

"We bought gold because we believe that is a method for diversifying our portfolio," Mr. Subbarao said.

 

Still, Atiur Rahman, governor of the central bank of Bangladesh, favored a move toward a broader representative global currency in the medium term. "I think that the global system should gradually move into a couple of more currencies which are more convertible. For stability, the global reserve system needs a handful of 4-6 fully convertible currencies of fairly large economies or monetary unions."

 

Write to Subhadip Sircar at subhadip.sircar@dowjones.com