UPDATE 1-China officials call for displacing dollar, in time
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BEIJING, July 6 (Reuters) - The financial crisis has laid bare defects in the dollar-led global economy and the world should look to displace the U.S. currency, even if that will take many years, Chinese officials said in comments published on Monday.
The push for fundamental, if gradual, reform of the international financial system comes just before the Group of Eight summit in Italy, where China's willingness to question the dollar's role could fuel debate.
The Special Drawing Right (SDR), a unit of account used by the International Monetary Fund, presents a viable alternative to the dollar as a global reserve currency, said Li Ruogu, chairman of the Export-Import Bank of China, a major state-run bank.
"It is a feasible plan to reform the present SDR and make it into a real settlement currency, a universally accepted 'currency basket' that would replace the dollar at the heart of the monetary system," Li was cited as saying in Financial News, a newspaper published by the central bank.
The People's Bank of China made waves in March when it first suggested that the SDR, whose exchange rate is determined by a mixture of dollars, euros, sterling and yen, was better suited than any single currency to be a yardstick for global trade and a reliable store of value.
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"The financial crisis caused the global economy to suffer heavy losses and it also let us clearly see how unreasonable the current international monetary system is," Li, a former central bank vice governor, said.
"But it would be difficult to find and implement a feasible replacement plan in the short term, so we will still have to travel a relatively long road for reform of the international monetary system."
Li's warning was echoed by Wang Xin, a central bank economist, who said it would be impossible "to get there in one step".
Wang, head of the central bank's financial research department, said that China was inching towards the internationalisation of the yuan with the launch of a pilot programme to allow companies to settle some goods trade in the Chinese currency. [ID:nSHA25097]
"Only when the yuan has achieved basic convertibility and when domestic financial markets are fully opened can the yuan truly become an international trade settlement currency and store of value," he said, also in comments carried by the Financial News.
INTERNAL TENSION
The tension between China's vision for a radical overhaul of the global financial system and its big stake in the existing order has been on display in the run-up to the G8 summit, which starts on Wednesday in Italy.
China holds an estimated 70 percent of its $1.95 trillion in official foreign exchange reserves in the dollar and is wary of saying anything that would undermine the value of its investments. Continued...
