China calls for ‘stable’ dollar
China, the largest holder of foreign currency reserves, reiterated its call for a stable dollar and a diversification of the international monetary system.
“We hope that as the main reserve currency the exchange rate of the U.S. dollar will be stable,” Vice Foreign Minister He Yafei told reporters in Beijing. “This international financial crisis has fully exposed the weaknesses and loopholes in the international monetary system.”
China, whose leaders have expressed concern that U.S. government spending to counter a recession will weaken the dollar, cut its holdings of dollar reserves by $4.4 billion in April to $763.5 billion, the latest figures available show. President Hu Jintao will attend this month’s Group of Eight summit, where the topic of a new global reserve currency may be discussed, He said.
“The magnitude of China’s foreign-exchange holdings limits its ability to move out of the dollar very quickly without shooting itself in the foot,” said David Cohen, an economist with Action Economics in Singapore. “Finding alternatives is a long-term goal.”
The dollar rose against the euro and erased losses versus the yen after the vice minister said he wasn’t aware that China had requested a discussion of a new reserve currency as part of the G-8 agenda. The dollar climbed to $1.4109 per euro as of 1:25 p.m. in Tokyo from $1.4142 in New York yesterday, when it declined to $1.4201, the lowest since June 5. The dollar was at 96.60 yen from 96.65 yen.
The dollar declined beyond $1.42 versus the euro yesterday after Reuters, citing G-8 sources, said China asked to debate proposals for a new global reserve currency at the summit.
“We hope that in the future the international monetary system will be diversified and I believe that this is the aspiration of the entire international community,” He said. “If this issue is raised by leaders during the meeting it is nothing strange, it is natural because we are all discussing how to respond to the international crisis.”
China’s central bank on June 26 renewed its call for a new global currency and said the International Monetary Fund should manage more of members’ foreign-exchange reserves.
“To avoid the inherent deficiencies of using sovereign currencies for reserves, there’s a need to create an international reserve currency that’s delinked from sovereign nations,” the People’s Bank of China said in its 2008 review. The IMF should expand the functions of its unit of account, Special Drawing Rights, the report said.