China says wants diversified FX but not pushing debate

(Agencies)
Updated: 2009-07-02 16:07

BEIJING: China hopes for diversification of the international currency system in the future and it would be "normal" for the issue to be raised at next week's Group of Eight summit, Vice Foreign Minister He Yafei said on Thursday.

But He, who is in charge of China's G8 preparation, told a news briefing he had not heard that Beijing had requested a discussion about reserve currencies at the meetings in Italy.

G8 sources told Reuters on Wednesday that China had asked for a debate on proposals for a new global reserve currency in Italy and the issue could be referred to briefly in the summit statement.

That news pushed the dollar down to three weeks low. It is particularly sensitive to comments from China because bankers estimate the country holds perhaps 70 percent of its $1.95 trillion in official currency reserves in the dollar.

"I have not heard that China has this request," He said in response to a reporter's question about the matter. "I have not heard of China raising this for discussion."

The dollar ticked higher after the comments by He, who also said the dollar was the main global reserve currency and he hoped it would be stable.

But he flagged that Beijing expected the reserve currency issue to come up at the three-day G8 meeting starting next Wednesday.

"This financial crisis has fully exposed some shortcomings in the international currency system," He said. "Of course we hope that in the future, the international currency system can diversify.

"I think this is an objective that the international community naturally wants to realise, and as I just said, if in the meetings some leader raises this issue for discussion, that would be normal."

China's central bank last week renewed its call for the creation of a super-sovereign reserve currency to reduce the dollar's global domination, which it said had worsened the financial crisis.

President Hu Jintao, who will be in Italy to attend the G8 summit, has yet to make any public statement about the idea for a new reserve currency.

The People's Bank of China caused a stir with its suggestion, first made in March, that the International Monetary Fund's Special Drawing Right (SDR) could eventually displace the dollar as the principal reserve currency.

The SDR is an international reserve asset allocated to IMF members and its exchange rate is determined by a basket of dollars, euros, sterling and yen.

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