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 traveled to Italy for a three-day summit starting on Wednesday, it seemed unlikely the currency debate would get a specific mention in summit documents.
But both G8 member Russia and emerging power Brazil — which like China and India is a member of the “G5” that 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 China and Russia would “state their stance that the global currency system needs smooth evolutionary development.
Brazilian President Luiz Inacio “Lula” da Silva said he was keen to explore “the possibility of new trade relations not dependent on the dollar” and India has also said it is open to the debate.
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 the dollar was likely to remain the global reserve currency but the Chinese yuan and the euro would slowly gain in significance.
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.
China, which has up to 70 percent of its $1.95 trillion in official currency reserves in the dollar, underlines that the dollar is still the most important reserve currency.
But it believes over-reliance on the dollar has exacerbated the financial crisis and sees the International Monetary Fund’s special drawing rights (SDRs), based on a basket of currencies, as a viable alternative for the future.
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