Obama: Strong confidence in dollar

Calls from China and other emerging economies for the creation of a new global currency to replace the US dollar are unnecessary because confidence in the dollar is “extraordinarily strong”, Barack Obama has said.

• In a televised news conference on Tuesday which focused heavily on the economic crisis, the US president rejected the idea of moving away from the dollar as the world’s main reserve currency.
• The head of China’s central bank had earlier called for the introduction of a new single currency, to be overseen by the International Monetary Fund.
• 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 crisis, he said, had shown the “inherent vulnerabilities and systemic risks in the existing international monetary system”.
• In an online essay published in both English and Chinese, Zhou said the move to a new single currency would give governments – particularly in the developing world – the ability to manage their economies more efficiently.
• But asked about the proposal in Washington on Tuesday, Obama dismissed the suggestion, saying it was not needed.
• “As far as confidence in the US economy or the dollar, I would just point out that the dollar is extraordinarily strong right now,” he said.
• “The reason the dollar is strong right now is because investors consider the United States the strongest economy in the world with the most stable political system in the world.”
• While he conceded that “we are going through a rough patch”, he said there was widespread confidence that “prospects for the world economy are very, very strong”.
• Timothy Geithner, the US treasury secretary, and the chairman of the Federal Reserve, Ben Bernanke, also rejected the Chinese call during a congressional hearing on Capitol Hill on Tuesday.
   
  Asked if he would categorically renounce the US moving away from the dollar and going to a global currency, Geithner replied: “I would, yes.”
• Asked the same question, Bernanke said: “I would also.”
• The call from China’s central bank chief for a new global currency comes as leaders from the Group of 20 major economies prepare to meet in London for a summit 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 idea has also been proposed by Russia, which has said it will put forward its own proposal on single global currency at the G20 meeting.
• Moscow has said its proposal has broad support among other key emerging market economies including Brazil, India, China, South Korea and South Africa.
• The idea though has been rejected by the European Union’s top economic official, who said on Tuesday that the dollar’s status as the international reserve currency is secure despite China’s proposal.
• “Everybody agrees also that the present world reserve currency, the dollar, is there and will continue to be there for a long period of time,” Joaquin Almunia, the EU commissioner responsible for economic and monetary affairs, told reporters.
• Australia’s prime minister, Kevin Rudd, who is in the US for talks with Obama, also rejected the global currency idea.
• He told a Washington audience late on Monday that the dollar’s position as the world’s reserve currency remains unchallenged.