Obama rejects China's call for new global currency
China is the largest creditor...
US President Barack Obama has defended the dollar as "extraordinarily strong" and rejected China`s call for a new global currency as an alternative to the dollar, according to AFP.
He said investors considered the United States "the strongest economy in the world with the most stable political system in the world" even as it was reeling from a prolonged recession stemming from financial turmoil.
People`s Bank of China Governor Zhou Xiaochuan had called for a replacement of the dollar, installed as the reserve currency after World War II, with a different standard run by the International Monetary Fund.
"As far as confidence in the US economy or the dollar, I would just point out that the dollar is extraordinarily strong right now," Obama told a White House press conference on Tuesday.
He said that although the United States was "going through a rough patch" at present, it enjoyed a "great deal of confidence" from investors.
"So you don`t have to take my word for it," he said.
"I don`t believe there is a need for a global currency," Obama said, in what appeared to be a break from tradition among US presidents not to comment directly on the dollar`s value.
Zhou suggested the IMF`s Special Drawing Rights, a currency basket comprising dollars, euros, sterling and yen, could serve as a super-sovereign reserve currency, saying it would not be easily influenced by the policies of individual countries.
China is the largest creditor to the United States, being the top holder of US Treasury bonds worth 739.6 billion dollars as of January, according to US figures. It is also the world`s largest holder of US dollars as a reserve currency, at more than one trillion dollars.
Zhou`s comments came just two weeks after Chinese Premier Wen Jiabao, in a rare expression of concern, called on US economic planners to safeguard Chinese assets.
"We have lent huge amounts of money to the United States. Of course we are concerned about the safety of our assets," Wen said as the United States grappled with the worst financial turmoil since the Great Depression.
The latest Chinese concern came as the dollar took a beating following the Federal Reserve`s decision last week to buy up to 300 billion dollars in long-term US Treasury bonds and boost its purchases of mortgage securities by 750 billion dollars in an effort to revive the ailing economy.
The decision, according to foreign exchange dealers, made US assets less attractive to investors worried that the Fed move would end up debasing the world`s reserve currency.
Despite the financial meltdown at home, the dollar has been mostly regarded as "safe haven" by investors averting risks amid a global economic slump.
Before Obama spoke, the dollar ended higher Tuesday against key currencies.
The euro fell to 1,3469 dollars in late New York trading from 1,3617 a day earlier while the greenback rose to 97.88 yen from 97.13.
US Federal Reserve chief Ben Bernanke and Treasury Secretary Timothy Geithner on Tuesday also defended the dollar at a congressional hearing.
At the hearing, a lawmaker asked the two financial chiefs: "Would you categorically renounce the United States moving away from the dollar and going to a global currency as suggested by China?"
Geithner immediately responded, "I would."
"And the chair?" the lawmaker asked, turning to Fed chairman Bernanke.
"I would also," Bernanke said.
The idea of a global currency determined by multilateral organizations is not new, said John Lipsky, the IMF`s first deputy managing director.
"But it`s a serious proposal," he said in Washington.
And he hastened to add, "I don`t think even the proponents think it as a short-term issue but as a longer-term issue that merits serious study and consideration."
EU Economic and Monetary Affairs Commissioner Joaquin Almunia said the dollar would remain unchallenged as the top reserve currency even as emerging economies such as China play a more critical role in the global economy.
He said, "I don`t expect major structural changes in the role that the dollar plays today as a reserve currency."
The debate over the dollar`s role came ahead of the G20 summit of developing and industrialized nations on April 2 in London, where world leaders and international organizations, including the IMF, are to discuss reforming the financial system.
Russia has also proposed the summit discuss creating a supranational reserve currency. The IMF created the SDR as an international reserve asset in 1969, but it is only used by governments and international institutions.