LONDON (Reuters) - Russia proposed on Thursday an IMF or G20 study on creating a new international reserve currency and China reiterated support for a broader discussion of the dollar’s role that was missing at the London G20 summit.
Strengthened regional currencies would be a basis for the new unit, which could also be partially backed by gold, Russia said in a statement released on the sidelines of the summit.
Chinese President Hu Jintao said the international monetary system had to be improved.
“It is necessary to maintain the relative stability of the exchange rates of major reserve currencies and develop a more diverse and rational international monetary system,” he told the summit.
China and Russia have floated in recent weeks ideas about reducing reliance on the U.S. dollar as the world’s primary unit of foreign exchange, possibly by developing the Special Drawing Rights issued by the International Monetary Fund.
But the G20 Financial Summit has focussed firstly on promoting economic growth and repairing the financial system — not on the longer-term task of overhauling the foundations of the global monetary system.
The idea, however, is gaining momentum since one underlying cause of the current crisis is seen to be heavy reliance on dollar-based assets as the only highly liquid instrument to invest in.
“The new global reserve currency has not been discussed at the summit. We only discussed it at several bilateral meetings,” Russian President Dmitry Medvedev’s chief economic aide Arkady Dvorkovich told a news briefing.
The Russian statement called developing the global currency system a very important issue for strategic, rather than tactical, solutions to the financial crisis.
It said that “we should return to this topic in the months immediately after the summit.”
China’s Hu did not call for an immediate discussion on a new reserve currency but urged the International Monetary Fund (IMF) to strengthen and improve its oversight of the macroeconomic policies of major reserve currency-issuing economies.
The reasons for promoting discussion are that currency markets are extremely unstable, new regional currencies are strengthening and the euro’s launch showed how it could promote fiscal discipline.
According to the IMF, the dollar accounted for 64 percent of the world’s foreign currency reserves, followed by the euro, at 26 percent, with sterling and the yen at 5 and 3 percent.
Russia said countries with major currencies “do not bear sufficient responsibility for macroeconomic policies.”
“On this basis we conclude that it would be wise to support the creation of strong regional currencies and to use them as the basis for a new reserve currency. One could also consider partially backing this currency with gold,” Russia said.
“It is not our goal to destroy existing institutions or to weaken the dollar, pound or euro. We are simply calling for a joint assessment of how the global currency system can most favourably be developed for the sake of the global economy.”
Accordingly, Russia proposed that the IMF or a G20 working group prepare studies, for review by G20 finance ministers and central bankers, both on widening the list of currencies used as reserve currencies by taking coordinated measures to stimulate the development of major regional financial centres; and on creating a supranational reserve currency.