* China's central bank calls for super-sovereign currency
* Dollar's dominance has intensified risk, worsened crisis
* IMF should manage part of its members' FX reserves
By Zhou Xin and Chris Buckley
BEIJING, June 26 China's central bank renewed
its call on Friday for the creation of a super-sovereign reserve
currency to reduce the dollar's global domination, which it said
had worsened the financial crisis.
In its annual financial stability report, the central bank
did not mention the dollar by name but said it was a serious
defect that one currency should tower over all others.
"An international monetary system dominated by a single
sovereign sovereign currency has intensified the concentration
of risk and the spread of the crisis," the People's Bank of
In thinly-veiled criticism of loose U.S. monetary and fiscal
policies, the PBOC urged the International Monetary Fund to
exercise closer supervision of the economic and financial
policies of major reserve-issuing countries.
The 170-page report dusted off a call by the bank's
governor, Zhou Xiaochuan, for the creation of a super-sovereign
In an essay in late March, Zhou caused a stir by suggesting
that the Special Drawing Right, the IMF's unit of account, could
eventually displace the dollar as the principal reserve
Friday's report not only advocated a full role for the SDR
but said the IMF should be entrusted with managing a portion of
its member countries' foreign currency reserves.
"To avoid intrinsic shortcomings in using a sovereign
currency as a reserve currency, we need to create an
international reserve currency that is divorced from sovereign
states and can maintain a stable value over the long term," the
Chinese officials have expressed growing concern in recent
months that massive U.S. fiscal and monetary stimulus will
generate inflation and drive down the dollar, handing Beijing
big losses on its vast portfolio of U.S. bonds.
Bankers say China holds perhaps 70 percent of its $1.95
trillion in official currency reserves in dollars.
"When a national currency becomes the global price-setting
currency for primary products, the trade settlement currency and
the reserve currency, that national currency has great
difficulty attending to both domestic monetary policy goals and
the reserve currency needs of various countries.
"And the economic development model of debt-based
consumption is most difficult to sustain," the report said.
The PBOC also levelled criticism at international banking
rules, drawn up by the Basel Committee on Banking Supervision,
which it said had paid inadequate attention to the risks
inherent in complex credit securities.
Oversight of derivatives had also been lax, the report said.
Turning to the domestic economy, the PBOC said the slump in
global trade caused by the international financial crisis would
spawn risks for China's banks as exporters ran into
By weighing on incomes, the crisis might also slow China's
drive to develop a consumption-led economy, the PBOC said.
The central bank also said China could face inflationary
pressure in the medium- to long-term as a result of liquidity
now being pumped into the global financial system, coupled with
extensive deficit spending by many governments.
(Reporting by Zhou Xin, Aileen Wang and Chris Buckley; Writing
by Alan Wheatley; editing by Patrick Graham)