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US says will support dollar

25 September 2009 12:07 (UTC +04:00)

Baku. Vahab Rzayev-APA-Economics. Treasury Secretary Timothy Geithner reaffirmed the US strong-dollar policy at the opening of the Group of 20 summit, following China-led calls to review its role as a reserve currency.
"A strong dollar is very important to the United States," Geithner said at a news conference on Thursday at the opening of the two-day summit in Pittsburgh, where leaders of the largest rich and emerging economies are discussing the global economic crisis.
US President Barack Obama and other G20 leaders also will discuss a new framework to correct economic imbalances blamed for fueling the crisis.
Some argue that the financial crisis resulted from imbalances between savings and investment in major economies, which have led to large current deficits, as evident in the United States, and surpluses, as enjoyed by China.
Beijing was the first to call for a new global currency as an alternative to the US dollar as the US deficit rocketed -- the White House estimates it could reach nine trillion dollars over a decade.
A senior official from China’s central bank said Thursday. stability of the weak US dollar is critical to the global economic recovery.
"The People’s Bank of China and other relevant departments in the Chinese government are watching very closely where the US dollar is headed," Xie Duo said.
"We are also analyzing the causes of this and making our own assessment on the future exchange rate of the US dollar," Xie, a director general of the Chinese central bank, said on the sidelines of the G20 summit.
"Since US dollar is a major reserve currency and a major trade settlement currency, the stability of the US dollar has a key influence on the stability of the world economic recovery."
Chinese Premier Wen Jiabao expressed concern as early as March over the safety of his country’s huge US bond holdings now worth more than 800 billion dollars, making it the largest creditor to the United States.
Then, Chinese central bank governor Zhou Xiaochuan, who supervises more than two trillion dollars worth of dollar reserves, the world’s largest, raised the stakes by calling for a new reserve currency in place of the dollar.
He wanted the new reserve unit to be based on the SDR, a "special drawing right" created by the International Monetary Fund, drawing immediate support from Russia, Brazil and several other nations.
"These countries realize that they would suffer losses if inflation eroded the value of the dollar securities they own," said Richard Cooper, a professor of international economics at Harvard University.
But he said there were no feasible alternatives to the US dollar as a widely used international currency, discounting even IMF’s synthetic SDR currency, comprising a basket of the dollar, euro, yen and the pound.
"The dollar will remain the dominant world currency, thanks to the stability of our political system and the rule of law that isn’t a feature of many other economies," said Irwin Stelzer, director of economic-policy studies at the Washington-based Hudson Institute.
Even the Chinese are stuck with nearly a trillion dollars worth of US bonds and are not likely to drive down the value of that hoard by selling large amounts of dollar-denominated assets, Stelzer said.
But what is baffling analysts is that a key UN agency -- the United Nations Conference on Trade and Development, or UNCTAD -- has joined the chorus of calls for a new reserve currency.
An UNCTAD report this month endorsed a proposal that IMF-issued SDRs "could be used to settle international payments."
Until the current global economic crisis, SDRs issued by the IMF have been used by IMF member nation states "primarily as a reserve account to support international trade transactions, not as an alternative international currency available to settle international debt transactions in danger of default," said political scientist Jerome Corsi in "Red Alert," a global financial newsletter.
China, meanwhile, continues to flex its muscle.
It has proposed that the G20 economies consider setting up an international wealth fund that would invest a portion of its members’ current-account surpluses in developing economies. Source: AFP