China urges new global reserve currency
China urges new global reserve currency
Terence Poon | March 24, 2009
Article from: The Wall Street Journal
CHINA has called for the creation of a new international reserve currency to replace the US dollar over time, laying down an unusually direct demand for an overhaul of global finance ahead of next week's summit to craft a response to the financial crisis.
"The re-establishment of a new and widely accepted reserve currency with a stable valuation benchmark may take a long time," People's Bank of China governor Zhou Xiaochuan said in an essay published on the central bank's website, titled "Reform of the International Monetary System".
Mr Zhou didn't explicitly mention the role of the US dollar, but said having a national currency act as an international reserve currency may have outlived its usefulness and that a desired goal now should be creating an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run.
Beijing also reiterated its call for reform of the International Monetary Fund but said it would be willing to consider short-term ways of bolstering the IMF's resources to help it fight the global financial crisis. PBOC vice governor Hu Xiaolian said Beijing would "actively" consider buying IMF bonds if the institution decides to issue bonds.
A long-running debate about giving developing nations a bigger say in the IMF in exchange for more funding has grown more urgent as the financial crisis ensnarls a growing list of nations, most recently in Eastern Europe. While the US and some European countries, such as Britain, look to nations like China to bolster IMF resources, Beijing has linked contributions with increasing the voice of developing nations and broader IMF reforms.
Beijing also said it will continue to invest in US Treasuries, following Premier Wen Jiabao's comments this month he is concerned about the safety of China's assets in the US.
China is the largest creditor nation to the US and holds a large bulk of US Treasuries through its foreign exchange reserves, which stood at $US1.95 trillion ($2.8 trillion) at the end of last year and are the world's largest.
When asked if Beijing would recapitalise the IMF on the condition that IMF quota reforms take place, Ms Hu said: "If we want the IMF to play a better role in the future, then a capital increase based on quota is the most fundamental way to do so."
Short term, she urged the IMF to consider other ways of financing and said Beijing is studying plans to boost the IMF's emergency funding under the New Arrangements to Borrow (NAB).
"We can combine considerations of a long-term and short-term capital increase" for the IMF, Ms Hu said during a press briefing about next week's meeting by the Group of 20 industrial and developing nations in London.
The IMF is considering issuing bonds for the first time in its history as it aims to double its lending ability to about $US500 billion from $US250 billion amid the global financial crisis. So far, Japan has agreed to lend the IMF $US100 billion. European Union leaders last week said they are willing to offer a loan of €75 billion ($145 billion) to expand the fund's resources, but want to see substantial commitments from the US and China first.
This month, US Treasury Secretary Timothy Geithner proposed that G20 nations help dramatically expand the NAB, a set of credit arrangements between the IMF and 26 members and institutions that act as emergency funding. The NAB could be increased by up to $US500 billion and membership could be expanded to include more G20 countries, he said.
G20 finance officials meeting earlier this month said that emerging economies must be given a greater voice in international financial institutions and agreed to adjust IMF voting quotas by January 2011.
China's position is in line with what Brazil, Russia, India and China --collectively known as the BRIC economies -- said in a joint statement at that meeting.
At the briefing yesterday, Chinese Vice Foreign Minister He Yafei said Beijing hopes the G20 meeting will boost the role of developing nations in the multilateral lenders. "For this, we need to establish a road map and time line that is specific and includes goals," he said.
On US Treasuries, Ms Hu said that China pays a great deal of attention to the "safety and yield" of its foreign-exchange holdings.
"Investment in US T-bonds is an important element of China's investment strategy of foreign exchange reserves and we will continue this practice," she said. "I also want to stress, we pay great attention to the fluctuation of the value of our assets."
Mr Wen's concern about the safety of China's assets in the US had appeared to rattle bond investors and prompted the Obama administration to say "there's no safer investment in the world than in the United States".
-J.R. Wu and Denis McMahon contributed to this article.