By Bloomberg News
July 3 (Bloomberg) -- Former Chinese Vice Premier Zeng Peiyan highlighted the nation’s concern at the risks posed by a global financial system dominated by the dollar, urging more oversight of countries issuing reserve currencies.
“There should be a system to maintain the stability of the major reserve currencies,” said Zeng, the head of a research center under the government’s top economic planning agency. Fiscal and current-account deficits must be supervised as “your currency is likely to become my problem,” he said in a speech in Beijing today.
Premier Wen Jiabao said in March that he was “worried” about his nation’s $763.5 billion of Treasuries as spiraling U.S. debt threatens the value of the dollar. China, the owner of the world’s biggest foreign-exchange reserves, called yesterday for a stable dollar and damped speculation that it is seeking talks on a new international reserve currency at next week’s Group of Eight meeting.
“They are reiterating the message that they are very concerned about the U.S. fiscal position,” said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. “China’s got a greater interest than anybody in making sure that the dollar doesn’t collapse.”
The dollar headed for a weekly gain versus the euro on speculation the global recession will be prolonged, increasing demand for the relative safety of the U.S. currency.
‘Inherent Deficiencies’
The dollar traded at $1.4014 per euro as of 7:08 a.m. in London from $1.4003 yesterday in New York, heading for a 0.3 percent gain this week. It earlier rose to $1.3929, the highest level since June 25. The U.S. currency bought 96.13 yen from 95.94 yen.
The yuan may join the dollar and euro in becoming one of the main currencies in the international monetary system after more than 10 years, Dai Xianglong, chairman of China’s national pension fund, said in Beijing today.
“The dollar’s dominant position won’t weaken soon as the international monetary system is a reflection of economic power,” Dai, formerly central bank governor, said.
The People’s Bank of China renewed on June 26 its call for a new global currency and said the International Monetary Fund should manage more of members’ foreign-exchange reserves.
“To avoid the inherent deficiencies of using sovereign currencies for reserves, there’s a need to create an international reserve currency that’s delinked from sovereign nations,” the central bank said in a report. The IMF should expand the functions of its unit of account, Special Drawing Rights, the report said.
‘Loose’ Monetary Policies
Zeng’s comments were in an online transcript. He heads the China Center for International Economic Exchanges, which was established in March and includes researchers, former government ministers and company executives. The Beijing-based agency, which is supervised by the National Development and Reform Commission, is holding a summit on the global financial crisis.
Zeng also cautioned against the possible ill effects of “loose” monetary policies, such as those of the U.S., echoing a statement by the central bank in May.
“A policy mistake made by some major central bank may bring inflation risks to the whole world,” the People’s Bank of China said then in a monetary-policy report.
China has $1.95 trillion of foreign-exchange reserves and is the biggest foreign holder of Treasuries. U.S. President Barack Obama is relying on the Asian nation to keep making purchases as his administration sells record amounts of debt to fund a $787 billion stimulus package.
The U.S. fiscal deficit is estimated to rise to 12.2 percent of GDP this year, according to the median estimate of 78 economists surveyed by Bloomberg News, up from 5.9 percent last year and 1.3 percent in 2007.
At the end of 2008, the dollar accounted for 64 percent of global central bank reserves, down from 73 percent in 2001, according to the IMF.
To contact the Bloomberg News staff on this story: Kevin Hamlin in Beijing on khamlin@bloomberg.net; Li Yanping in Beijing at yli16@bloomberg.net
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