China to push global currency at G8

China, Russia and Brazil will use this week's G8 summit in Italy to push their view that the world needs to start seeking a new global reserve currency as an alternative to the dollar, officials said on Tuesday.

• As leaders of the Group of Eight rich nations and the major developing powers travelled to Italy for a three-day summit starting on Wednesday, it seemed unlikely the currency debate would get a specific mention in summit documents.
• Both G8 member Russia and emerging power Brazil — which like China and India is member of the “G5,” which joins the second day of the summit on Thursday — echoed China’s calls for the currency debate to be taken up by world leaders.
• Top Kremlin economic aide Arkady Dvorkovich said the reserve currency debate “will not be discussed during G8.”
• “But China and Russia will state their stance that the global currency system needs smooth evolutionary development and this is connected with the creation of several regional reserve currencies, which may then become international,” he said.
• Brazilian President Luiz Inacio “Lula” da Silva said he was keen to explore “the possibility of new trade relations not dependent on the dollar.”
• But G8 members Germany, France and Canada played down talk of the summit including a detailed currency discussion. A source at President Nicolas Sarkozy’s office said the G8 was “generally not the forum … for discussing currency exchange rates.”
• German Finance Minister Peer Steinbrueck said on Monday that the dollar was likely to remain the global reserve currency but the Chinese yuan and the euro would slowly gain in significance.
• “It’s not probable that the U.S. dollar will lose its leading role as a currency worldwide,” Steinbrueck said.
• The debate is highly sensitive in financial markets, which are wary of risks to U.S. asset values. China and other nations promoting the debate take care to avoid undermining the dollar, with Lula saying it would be vital “for decades” to come.
• SDR COULD BE OPTION
• China, which has up to 70 percent of its $1.95 trillion (1.2 trillion pounds) in official currency reserves in the dollar, has underlined that the U.S. dollar is “still the most important and major reserve currency of the day.”
• It believes over-reliance on the dollar has exacerbated the global financial crisis and it sees the International Monetary Fund’s special drawing rights (SDRs), based on a basket of currencies, as a viable alternative for the future. But Chinese experts estimate this process could take as long as 50 years.
• Sources involved in preparation of the G8 meetings say that India also backs China’s call for the currency debate.
• European Commission President Jose Manual Barroso has said the world needs a number of stable currencies to provide “stability to the world financial order.”
• TRADE AND CLIMATE BREAKTHROUGHS?
• With nine African leaders attending the summit to discuss food security, there could be new pledges including $3-4 billion from the United States, which wants others to match that for a total commitment of $15 billion, according to a G8 draft declaration seen by Reuters.
• The G8 talks will open with a discussion of the economic crisis, producing a statement likely to focus on signs of stabilisation in major economies. Italian Prime Minister Silvio Berlusconi is eager to send out an optimistic message on the global outlook.
• The talks may also broach possible exit strategies from the downturn, though G8 leaders are likely to emphasise that it is too early yet to wind down policy stimulus.
• Where the Italian summit, hosted by Berlusconi in the earthquake-stricken town of L’Aquila, could produce breakthroughs is on climate change and trade.
• A draft communique suggested the G8 and G5 would agree to conclude the stalled Doha round of trade talks in 2010. Launched in 2001 to help poor countries prosper through trade, Doha has stumbled on proposals to cut tariffs and subsidies.
• With an eye on December’s U.N. climate change summit in Copenhagen, due to produce a replacement for the 1997 Kyoto pact, leaders will also try to narrow differences over cuts in greenhouse gas emissions and funding for low carbon technology.
• They are likely to agree to a goal to limit global warming to no more than 2 degrees Celsius (3.6 Fahrenheit) since pre-industrial times and to strengthen a vaguely-worded “vision” of halving global carbon emissions by 2050, agreed last year.
• If also adopted by the 17-member Major Economies Forum that meets on Thursday, to be chaired by U.S. President Barack Obama at his first G8 summit, this would be major progress as India and China have so far refused to accept the 2050 target.