LONDON A push by the world's leading emerging economies to dislodge the dollar as the dominant global reserve currency appears to be gaining momentum even as a weakening greenback adds further urgency to the discussion.
China on Monday added its voice to a growing international chorus seeking the replacement of the dollar as the main reserve currency, urging for an overhaul of the global monetary system to allow for wider use of Special Drawing Rights (SDRs) allocated by the International Monetary Fund (IMF).
Chinese central bank chief Zhou Xiaochuan said the SDRs, created by the IMF as international reserve assets in 1965, could be used as a super-sovereign reserve currency, eventually displacing the dollar.
His comments come a week after Russia said it would put forward a proposal for the creation of a new reserve currency issued by international financial institutions at the G20 meeting in April.
Russia said it had the broad support of its fellow BRIC countries -- Brazil, India and China -- as well as South Korea and South Africa for its proposal.
The push underscores growing concerns among emerging-market leaders about the long-term value of the dollar.
The dollar saw its biggest weekly slide since 1985 .DXY last week after the Federal Reserve's decision to buy long-term government debt raised the specter of oversupply in dollars.
That emerging economies -- among the largest dollar holders in the world thanks to strong export revenues -- want to diversify reserves away from the dollar is not only sensible but inevitable, argues Jerome Booth, Ashmore Investment Management research head.
"The unknowns are how fast and the disruption this may cause," Booth said.
China, which has the world's largest foreign-currency reserves at close to $2 trillion, would be especially keen to avoid a widespread dollar sell-off.
Chinese Premier Wen Jiabao said earlier this month that he was worried about China's heavy exposure to the United States -- which, taking into account its US Treasuries and other bond holdings, is estimated to represent about a two-thirds of its reserves.
Any Chinese move to reweight its reserves portfolio could be destabilizing to the value of the greenback because of the level of market scrutiny.
"As soon as you sell-off a part of your reserves, people will expect you to sell the rest so the value of everything you have would plummet," said Jon Harrison, emerging foreign exchange strategist at Dresdner Kleinwort.
SDRs, which have a value based on a basket of key international currencies, also serve as the unit of account of the IMF and some other international organizations.
"If you really believed that (the SDR adoption) was going to happen, you'd want to sell the dollar and buy other currencies that would be part of the SDR basket -- euros, yen and perhaps the pound," said Dresdner's Harrison.
China's Zhou has said global acceptance of a new reserve currency would take a long time, and would be "a bold initiative that requires extraordinary political vision and courage."
Russia, which has significantly reduced the dollar's share of its own reserves in recent years in tandem with the 2005 introduction of a euro/dollar basket for tracking the rouble, has signaled it does not expect to see any reforms rising from the Group of 20 nations meeting in London on April 2.
WATCHING EACH OTHER
Still, Russia and China's push for a global super-sovereign reserve currency could have resonance beyond the corridors of power in the developing world -- possibly even in Washington.
Adopting a super-sovereign reserve currency such as SDRs could do away with the global imbalances of recent years that allowed the United States to run up large twin budget and external deficits while export-oriented emerging economies accumulated dollar-denominated reserves.
This global imbalance has been blamed for the cheap borrowing costs in the U.S. that contributed to subprime mortgage bust that triggered the global credit crunch.
A United Nations panel of experts this week is set to recommend the world ditch the dollar as its reserve currency in favor of a shared basket.
Avinash Persaud, a member of the UN Commission of Experts on International Financial Reform, said the creation of something like the old Ecu -- or European currency unit -- as a hard-traded weighted basket was one of the recommendations that would be delivered to the U.N. on Wednesday.
Politics will determine the timing of any diversification moves, Ashmore's Booth said.
"Central banks are watching each other...Many countries may want to start a senior dialogue with the new US administration before selling their Treasuries," he said.
(Reporting by Sebastian Tong and Peter Apps; Editing by Andy Bruce)