TOKYO (Reuters) - Major countries should support the dollar as the key international currency, although emerging nations may discuss a new global reserve currency on the sidelines of the G8 summit next week, a Japanese official said on Friday.
China has asked for 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. News of the Chinese request pushed the dollar down to a three-week low on Wednesday.
But Japan thinks it would be difficult for another currency to replace the dollar as the world’s reserve currency and it is against any move that would unnecessarily weaken the status of the dollar, said Yoichi Suzuki, director-general of the Japanese foreign ministry’s economic affairs bureau.
“Japan’s stance is that major countries should support the dollar,” Suzuki, one of the country’s main coordinators for the G8 summit, told Reuters in an interview.
“It won’t benefit any country to talk about ideas for a new global key currency, which would weaken the dollar,” said Suzuki.
An idea, which China’s central bank has floated, that the International Monetary Fund’s Special Drawing Right (SDR) could eventually displace the dollar as the principal reserve currency was unrealistic, he added.
Japan is interested in a stable dollar for its trade with other countries and because most of its $1 trillion foreign reserves, the world’s second largest, are in dollar assets.
Suzuki said he would not be surprised if the G5 discussed the role of the dollar when they meet on the sidelines of the G8 summit in L’Aquila.
On Thursday, Chinese Deputy Foreign Minister He Yafei said it would be “normal” if diversification of the currency system were discussed at next week’s summit.
But Suzuki played down the idea, saying Tokyo does not expect the topic to be discussed at the meeting of G8 plus G5 emerging nations, including China, Brazil and India.
Talks at the July 8-10 summit are expected to focus on the state of the world economy, financial regulation, climate change and trade and development.
Tokyo will propose establishing principles and citing best practice to promote responsible investment in agriculture to cope with farmland acquisition or “land grabs” in developing countries, Suzuki said.
“Agriculture investment in developing countries should not be done because of trying to avoid tough environmental standards in industrial nations,” Suzuki said, noting that Japan has been getting support for this initiative from G8 counterparts.
By taking the lead on this proposal, Japan — the world’s largest net food importer — also hopes to gain support from developing countries that may have been hurt by irresponsible investment by foreign countries and companies, for Japanese firms’ overseas investment in agriculture, he said.
On a call by French President Nicolas Sarkozy for the G8 to discuss regulating oil prices to prevent the wild swings of recent years, Suzuki said G8 officials have not been discussing it for the summit’s agenda.
“Realistically, it would be hard to maintain oil prices at certain levels by intervening in the market. Japan thinks the most important thing would be to boost transparency of the market to avoid speculative moves,” he said.