MercoPress. South Atlantic News Agency

China suggests new global reserve currency to replace US dollar

China's central bank has called for a new global reserve currency run by the International Monetary Fund to replace the US dollar. Central bank governor Zhou Xiaochuan did not explicitly mention the dollar, but said the crisis showed the dangers of relying on one currency.

With the world's largest currency reserves of 2 trillion US dollars, China is the biggest holder of dollar assets. Its leaders have often complained about the dollar's volatility.

China has long been uneasy about relying on the dollar for trade and to store its reserves and recently expressed concerns that Washington's efforts to rescue the US economy could erode the value of the currency.

His speech was, unusually, published in both Chinese and English, signalling it was intended for an international audience.

“The outbreak of the crisis and its spill-over to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system,” said Mr Zhou in an essay on the People's Bank of China website.

Mr Zhou said the primacy of the US currency in the financial system had led to increasingly frequent crises since the collapse in the early 1970s of the system of fixed exchange rates.

On Tuesday, the dollar weakened against most major currencies following the announcement of a US plan to buy up toxic debt.

Mr Zhou said the dollar could eventually be replaced as the world's main reserve currency by the Special Drawing Right (SDR), which was created as a unit of account by the IMF in 1969.

“The role of the SDR has not been put into full play, due to limitations on its allocation and the scope of its uses,” he said.

“However, it serves as the light in the tunnel for the reform of the international monetary system.”

The essay comes before the G20 summit in London on 2 April, at which reform of the international financial system is top of the agenda.

Beijing also said it was ready to explore all channels possible to extend additional resources to the International Monetary Fund, including the issuing of IMF bonds.

“If the IMF decides to issue bonds to make itself of resources, China will actively consider the purchase of such bonds”, said Hu Xiaolian Deputy Governor of the Chinese central bank.

Another option would be to appeal to the 25 countries that are committed under an agreement to extend loans to the IMF in an emergency situation. China pointed out it does not belong to the exclusive club but...

Countries can also make bilateral contributions. Japan has promised 100 billion US dollars; the European Union, 75 billion Euros. The IMF has said it needs an additional 250 billion to face the global recession. However United States believes 500 billion US dollars will be needed.