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China bids for a global currency

CHINA is calling for the eventual development of a new global currency under the International Monetary Fund, demonstrating the country's desire to have a stronger voice in the world financial arena ahead of next week's G20 London Summit.

"The international community should move forward in reforming the international monetary system," Zhou Xiaochuan, governor of the People's Bank of China, said in an opinion piece published on the central bank's Website yesterday.

Zhou also wrote in a separate note posted late Monday that the outbreak of the financial crisis and its fallout across the entire world reflects the inherent vulnerabilities and systemic risks in the existing international monetary system.

He didn't single out the US dollar by name but said the crisis showed the dangers of relying on one nation's currency for international payments.

In a rare move, the two pieces were published in both English and Chinese, pointing strongly to an international audience.

China is expected to push for a bigger say for developing countries in the global financial system when state leaders of the Group of 20 major economies meet on April 2 in London to discuss a coordinated response to the global economic crisis. The G20 nations account for 80 percent of the world's economy.

"The desirable goal of reforming the international monetary system is to create an international reserve currency that is disconnected from individual nations," Zhou wrote.

In addition to its use as a reserve currency, Zhou said the new currency also should be used for trade, investment and pricing commodities.

He said the new currency should be based on shares in the IMF held by its 185 members, known as special drawing rights, or SDRs. The Washington-based IMF advises governments on economic policy and lends money to help with balance-of-payments problems.

Zhou also called for changing how SDRs are valued. Currently, they are based on the value of four currencies: the US dollar, euro, yen and British pound.

Expanded values

"The basket of currencies forming the basis for SDR valuation should be expanded to include currencies of all major economies, and the GDP may also be included as a weight," he said.

Other economists earlier proposed a new reserve currency, though they acknowledge it could take years to achieve.

Joseph Stiglitz, an Nobel Prize-winning economist and a professor at Columbia University in the United States, has argued that the use by central banks of SDRs as foreign exchange reserves could be viewed as the prelude to the creation of a single world currency.

China holds the world's biggest foreign reserves, amounting to US$1.95 trillion at the end of 2008.

China is also America's biggest foreign creditor, holding an estimated US$1 trillion in US government debt.


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