Wednesday, July 08, 2009
ROME: China, Russia and Brazil will use this weeks G8 summit in Italy to push their view that the world needs to start seeking a new global reserve currency as an alternative to the dollar, officials said on Tuesday.
As leaders of the Group of Eight rich nations and the major developing powers travelled to Italy for a three-day summit starting on Wednesday, it seemed unlikely the currency debate would get a specific mention in summit documents.
Both G8 member Russia and emerging power Brazil which like China and India is member of the G5, which joins the second day of the summit on Thursday echoed Chinas calls for the currency debate to be taken up by world leaders.
Top Kremlin economic aide Arkady Dvorkovich said the reserve currency debate will not be discussed during G8.
But China and Russia will state their stance that the global currency system needs smooth evolutionary development and this is connected with the creation of several regional reserve currencies, which may then become international, he said.
Brazilian President Luiz Inacio Lula da Silva said he was keen to explore the possibility of new trade relations not dependent on the dollar.
But G8 members Germany, France and Canada played down talk of the summit including a detailed currency discussion. A source at President Nicolas Sarkozys office said the G8 was generally not the forum for discussing currency exchange rates.
German Finance Minister Peer Steinbrueck said on Monday that the dollar was likely to remain the global reserve currency but the Chinese yuan and the euro would slowly gain in significance.
Its not probable that the US dollar will lose its leading role as a currency worldwide, Steinbrueck said.
The debate is highly sensitive in financial markets, which are wary of risks to US asset values. China and other nations promoting the debate take care to avoid undermining the dollar, with Lula saying it would be vital for decades to come. China, which has up to 70 per cent of its $1.95 trillion in official currency reserves in the dollar, has underlined that the US dollar is still the most important and major reserve currency of the day.
It believes over-reliance on the dollar has exacerbated the global financial crisis and it sees the International Monetary Funds special drawing rights (SDRs), based on a basket of currencies, as a viable alternative for the future. But Chinese experts estimate this process could take as long as 50 years.
Sources involved in preparation of the G8 meetings say that India also backs Chinas call for the currency debate. European Commission President Jose Manual Barroso has said the world needs a number of stable currencies to provide stability to the world financial order.
