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PBOC pushes again for SDR to have a full role

CHINA'S central bank yesterday renewed its call for the creation of a super-sovereign reserve currency to reduce the United States dollar's global domination, which it said had worsened the financial crisis.

In its annual financial stability report, the People's Bank of China (PBOC) did not mention the dollar by name but said it was a serious defect that one currency should tower over all others.

"An international monetary system dominated by a single sovereign currency has intensified the concentration of risk and the spread of the crisis," the central bank said.

The central bank urged the International Monetary Fund to exercise closer supervision of the economic and financial policies of major reserve-issuing countries.

The report dusted off a call by the bank's Governor Zhou Xiaochuan for the creation of a super-sovereign currency.

In an essay in late March, Zhou caused a stir by suggesting that the Special Drawing Right (SDR), the IMF's unit of account, could eventually displace the dollar as the principal reserve currency.

Yesterday's report not only advocated a full role for the SDR but said the IMF should be entrusted with managing a portion of its member countries' foreign currency reserves.

"To avoid intrinsic shortcomings in using a sovereign currency as a reserve currency, we need to create an international reserve currency that is divorced from sovereign states and can maintain a stable value over the long term," the report said.

Chinese officials have expressed growing concern in recent months that massive US fiscal and monetary stimulus will generate inflation and drive down the dollar, handing China big losses on its vast portfolio of US bonds. Bankers say China holds perhaps 70 percent of its US$1.95 trillion in official currency reserves in dollars.

The central bank also criticized global banking rules which paid little attention to the risks in complex credit securities.


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