China says dollar to remain leading world currency

(AFX UK Focus) 2009-07-05 19:58
UPDATE 1-China says dollar to remain leading world currency

ROME, July 5 (Reuters) - Chinese Vice Foreign Minister He Yafei said on Sunday the U.S. dollar would continue to be the world's leading reserve currency for years to come.

"The U.S. dollar is still the most important and major reserve currency of the day, and we believe that that situation will continue for many years to come," He told a news briefing in Rome before this week's Group of Eight summit.

Beijing has floated the idea of an alternative to the dollar as global reserve currency and wants the topic broached at the summit starting in Italy on Wednesday.
The vice minister said Chinese officials had voiced concern about the safety of the country's dollar-denominated assets. "That is natural," he said.

He said many other countries over the years had been calling for the stability of the U.S. dollar. "We appreciate the efforts made by the U.S. government in that direction," he said, adding that it was the responsibility of the government issuing the reserve currency to maintain its stability.

He said discussion about reserve currencies had intensified since the outbreak of the global financial crisis, which he said had revealed "many shortcomings in the international monetary system".

However, he described this as an intellectual debate.

"You may have heard comments, opinions from academic circles about the idea of establishing a super sovereign currency. This is all, I believe, now a discussion among academics. It is not the position of the Chinese government."

Zhou Xiaochuan, head of the Chinese central bank, launched the reserve currency debate last March when he said the SDR, the International Monetary Fund's unit of account, might one day displace the dollar.

Some diplomats and bankers suggest Zhou's primary aim was to highlight attention on concern expressed by Premier Wen Jiabao about the safety of China's huge dollar holdings -- at risk if U.S. policy turns to greater tolerance of inflation.

Bankers reckon China holds perhaps 70 percent of its $1.95 trillion in official currency reserves in the dollar.