China calls for new global currency

The head of the Chinese central bank has called for a new global currency controlled by the International Monetary Fund (IMF), saying such a move would give governments particularly in the developing world the ability to manage their economies more efficiently.

• In an online essay Zhou Xiaochuan, governor of the People’s Bank of China, said the global financial crisis had exposed the danger of relying on one nation’s currency for international payments.
• The essay, released on the bank’s website late on Monday, did not mention the US dollar by name, but the vast majority of international finance is carried out in dollars.
• The comments come ahead of a major meeting of leaders from the Group of 20 major economies in London which will focus on measures to alleviate the global economic crisis.
• During the meeting, beginning on April 2, China is expected to call for developing economies to have a bigger say in global finance and step up pressure for changes to a system dominated by the US dollar and Western governments.
• The unusual step of publishing Zhou’s essay in both Chinese and English versions is seen as indicating his comments are aimed at an international audience ahead of the G20 meeting.
• China has become increasingly assertive in economic issues and while the global financial crisis has hit Chinese export industries hard, its leaders are also viewing the crisis as a potential opportunity to increase China’s global clout.

• In his essay Zhou said the financial crisis had shown the need for “creative reform of the existing international monetary system towards an international reserve currency”.
• A reserve currency is the unit of denomination in which a government holds its reserves.
• Zhou said the proposed new currency should also be used for trade, investment, pricing commodities and corporate bookkeeping.
• He said the new currency should be based on shares in the IMF held by its 185 member nations, which are known as special drawing rights (SDRs).

  The Washington-based IMF advises governments on economic policy and lends money to help with balance-of-payments problems.

  In his essay Zhou said the new currency would let governments manage their economies more efficiently because its value would not be influenced by the needs of any one nation to regulate its own finance and trade.

  “A super-sovereign reserve currency managed by a global institution could be used to both create and control global liquidity,” he wrote, adding the changes would “”significantly reduce the risks of a future crisis and enhance crisis management capability.”

  The fallout from the financial crisis has underscored long-standing unease in Beijing about China’s reliance on the dollar for the bulk of its trade and to store foreign reserves.

  Earlier this month Wen Jiabao, the Chinese premier, publicly appealed to Washington to avoid any steps that might erode the value of the dollar and Beijing’s estimated $1 trillion holdings in Treasuries and other US government debt.