Chinese central bank Governor Zhou Xiaochuan (周小川) on Saturday again urged for international financial reform in the face of the global economic crisis.
Speaking at an Inter-American Development Bank (IADB) meeting in the northwestern Colombian city of Medellin, Zhou said that current fiscal and monetary measures were useless if the international financial system is not overhauled.
He said financial reform and measures for international development banks like the IMF and the World Bank would likely be discussed at the upcoming G20 summit of developing and industrialized nations on Thursday in London.
PHOTO: AFP
“Up to now we have participated in some working groups which focus on coordinating effort to overcome the negative impact of the financial crisis,” Zhou said.
“The second [effort] is maybe financial sector reform, including regulatory reform and I think we also expect there may be some reform agenda for international financial institutions, including the Fund, the Bank and other development banks,” he said.
He also called for tougher regulation of international financial institutions. The issue of the world currency reserve is expected to be raised at the G20 summit.
The banking chief this week called for a replacement of the dollar, installed as the reserve currency after World War II, with a different standard run by the IMF.
Zhou suggested the IMF’s Special Drawing Rights (SDR), a currency basket comprising dollars, euros, sterling and yen, could serve as a super-sovereign reserve currency, saying it would not be easily influenced by the policies of individual countries.
IMF managing director Dominique Strauss-Kahn welcomed Zhou’s comments and said that talks on a new world reserve currency to replace the US dollar were “legitimate” and could take place “in the coming months.”
But US Treasury Secretary Timothy Geithner defended the dollar as a key global reserve currency in Washington. Geithner was scheduled to attend the IADB summit yesterday.
“I hope I can see Geithner. He’s coming? Tomorrow, yeah?” Zhou said with a note of surprise in his voice.
Zhou said China would be prepared to participate if the IMF sought to increase its reserves to better tackle the crisis.
“Certainly, we have quite an active preparation to participate if IMF wants to raise their reserves,” he said.
Asked if one possibility would be a private placement of SDR-denominated bonds, he said: “I think the approach is not that important. But anyway China is going to do some things. And I think probably [a] technical issue [is] still in discussion.”
Zhou also said it was uncertain whether China’s economic slowdown had ended and he urged more financial reforms in the face of the worldwide slump.
China is facing a challenge to its economy as demand slows in the US and Europe amid the global crisis. Exports have dropped from last year’s levels in the last four consecutive months, including a 25.7 percent drop last month.
“You know it still very much depends if this global financial crisis reached bottom,” Zhou told reporters when asked if China’s slowdown had halted. “This kind of dependence is the most important. Up to now it is still uncertain. We don’t know yet.”
China is targeting GDP growth of 8 percent this year and is spending 4 trillion yuan (US$585 billion) on a two-year stimulus package to maintain high economic growth.
The World Bank on March 18 lowered its forecast for China’s economic growth this year to 6.5 percent from the November estimate of 7.5 percent, warning Beijing it would actually be thwarting its own medium-term goals if it tried to offset the slowdown by further boosting investment.
Meanwhile, Europe is comfortable with China’s growing world role but believes the G20 summit will be too early to decide on Beijing’s calls for more say in global financial bodies, the EU Commissioner for External Relations said yesterday.
EU Commissioner Benita Ferrero-Waldner said in Beijing that the London gathering of 20 major wealthy and developing powers this week would focus on “concrete results” to revive the global economy, not more distant issues.
China caused a stir ahead of the Thursday summit when it suggested the world move to greater use of the IMF SDF as an international reserve currency.
“I don’t think that this will be the question that really will be discussed thoroughly in London,” Ferrero-Waldner said after talks with Chinese Foreign Minister Yang Jiechi (楊潔箎) and Vice Premier Li Keqiang (李克強).
Likewise, she said, China’s call for a bigger role in the IMF and other international financial bodies would not be a focus of the summit.
“I think it’s too early for us to give a really concrete answer,” she said of these calls. “I think it is within the IMF, it is within the international financial institutions, that these questions have to be discussed.”
The idea of a new reserve currency system based on the SDF has not been entirely knocked down, but many G20 leaders have made clear that for now the US dollar’s status as the dominant reserve unit remains.
Ferrero-Waldner is seeking to smooth differences between Brussels and Beijing before the G20 meeting and a planned summit between China and the EU in May.
She said China’s growing economic clout naturally meant more of an international role for Beijing.
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