UPDATE 1-India may reduce U.S. dollar role in FX basket

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By Anna Willard

AIX-EN-PROVENCE, France, July 3 (Reuters) - The weight of the dollar in the basket of currencies that helps set the rate of India's partially convertible rupee currency INR=IN may be reduced, a senior Indian government adviser said on Friday.

Suresh Tendulkar, chairman of the prime minister's economic advisory council, said the Indian central bank was responsible for any change but he believed such a move was quite possible.

"The basket may undergo change. That's up to the Reserve Bank of India. They have to make a call which is the stability of the foreign exchange," he told reporters on the sidelines of an economics conference in the southern French town of Aix.

"I would not be surprised if they change it," (to reduce the weight of the dollar in the basket) he said.

Up until now, the U.S. dollar had been considered the main reserve currency in India, he said.

"India may change. That is something where no decision has been taken."

China has asked for a debate on a new global reserve currency when leaders from the Group of Eight (G8) meet with the G5 emerging economies next week in Italy, G8 sources told Reuters.

"I think if you look at the global imbalances that were being talked about today between the surpluses and China and Japan and the deficits of the United States, I think that needs to be corrected. That I think is clear," Tendulkar said.

"That essentially would mean that the Chinese yuan and the Japanese yen appreciate. That is the major danger that China is fearing. China is now asking for an international currency because all the reserves are in dollars."

Asked whether the U.S. dollar should be weaker he said: "I think it is necessary ... it should go down."

Tendulkar said countries needed to make a decision about whether the U.S. dollar would continue to be the main reserve currency.

"I think that is something that will have to be decided by consensus with all the countries concerned," he said.

Earlier on Friday in Tokyo, Yoichi Suzuki, director-general of the Japanese foreign ministry's economic affairs bureau, said major countries should support the dollar as the key international currency.

He said Japan thinks it would be difficult for another currency to replace the dollar as the world's reserve currency and is against any move that would unnecessarily weaken the status of the dollar. [ID:nL3591266]