China demands currency reform at G8, Britain skeptical

By Simon Rabinovitch and Matt Falloon

L'AQUILA, Italy (Reuters) - China on Thursday called for reform of the global reserve currency system at a meeting of world leaders in one of its most direct attacks yet on the dollar's dominance.

Chinese State Councilor Dai Bingguo did not name the dollar at talks between G8 rich nations and G5 emerging powers, but was unequivocal in calling for the world to diversify the reserve currency system and aim at relatively stable exchange rates.

China's ideas for changing the system had previously been mentioned in reports by its central bank, but had never been voiced in a speech by such a high-ranking political leader.

"We should have a better system for reserve currency issuance and regulation, so that we can maintain relative stability of major reserve currencies' exchange rates and promote a diversified and rational international reserve currency system," Dai told the summit in Italy, according to a statement read by foreign ministry spokesman Ma Zhaoxu.

British Prime Minister Gordon Brown, however, said any discussion of alternative currencies would be one for the long term to avoid destabilizing markets while world leaders focus on pulling the global economy out of a painful recession.

"In this present situation as we're trying to get out of a deep recession, I don't want to give the impression that there is some major change about to happen around the corner that suggests that the present arrangements are destabilized," Brown told reporters after talks on the second day of the summit.

Foreign exchange markets were unmoved by Dai's comments, with investors' focused on upbeat signals for the U.S. economy and global stocks as well as signs Germany's Bundesbank may buy corporate bonds.

AUTHORITATIVE STANDPOINT