June 16, 2009 / 1:33 AM / 9 years ago

UPDATE 1-Japan's Yosano: dlr to remain world's key currency

(For more stories on the Japanese economy, click [ID:nECONJP])

* U.S. budget deficit sparks worry over investor confidence

* BRIC nations expected to discuss new reserve currency

TOKYO, June 16 (Reuters) - Japanese Finance Minister Kaoru Yosano reiterated on Tuesday his view that the dollar will remain the world’s key reserve currency, despite rising calls among some countries to reduce dependence on it.

“I have strong confidence in (the U.S dollar.) That has not changed at all. U.S. policy is to maintain a strong dollar. Examining it from all aspects, the U.S. dollar will remain the key currency,” Yosano told a news conference after a cabinet meeting.

Leaders of the world’s biggest emerging economies — Brazil, Russia, India and China — are expected to discuss ideas for a new reserve currency at their first formal summit next week.

Although the dollar’s trade-weighted index =USD is above its low hit last year, worries that investors may lose confidence in the dollar are simmering as the U.S. budget deficit is ballooning following the economic crisis.

Currently about 65 percent of foreign exchange reserves are in dollars.

Japan does not disclose the currency breakdown of its $1 trillion of foreign reserves but much of it is thought to be in dollars, making it the world’s second-largest holder of U.S. Treasuries after China.

Japanese officials have said they do not see a change in the dollar’s status as the key currency in the near future.

The dollar rose broadly on Monday after Russian Finance Minister Alexei Kudrin, speaking on the sidelines of a Group of Eight finance ministers in Italy, said the dollar’s role as the world’s main reserve currency is unlikely to change in the near future. [ID:nFCA000184]

Kudrin’s comments marked a reversal of Russia’s previous calls for the world to become less dependent on the dollar and a pledge on June 10 by Russian central bank First Deputy Chairman Alexei Ulyukayev to cut its holdings of U.S. Treasuries. Russia holds the world’s third-largest foreign exchange reserves. China, holder of the largest currency reserves, and Russia have argued in the past that central banks could use special drawing rights from the International Monetary Fund to diversify their reserves away from the dollar. (Reporting by Hideyuki Sano; Editing by Michael Watson)

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