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Obama stands by greenback as prime reserve currency

The US on Tuesday defended the use of the greenback as a key global currency, shrugging off China's calls to ditch it as the international reserve currency.

US President Barack Obama told a White House press conference that “the dollar is extraordinarily strong right now,” and although the US was “going through a rough patch” at present, it enjoyed a “great deal of confidence” from investors.

“I don't believe there is a need for a global currency,” Obama said.

But People's Bank of China Governor Zhou Xiaochuan's (周小川) call to replace the dollar, installed as the reserve currency after World War II, with a different standard run by the IMF was a “serious” proposal, a senior IMF official said.

US Federal Reserve Chairman Ben Bernanke and Treasury Secretary Timothy Geithner said at a congressional hearing that they would not allow the dollar to be stripped of the premier reserve status as suggested by Beijing.

At the hearing, a lawmaker asked the two financial chiefs: “Would you categorically renounce the United States moving away from the dollar and going to a global currency as suggested by China?”

Geithner immediately responded: “I would.”

“And the chair?” the lawmaker asked, turning to Bernanke.

“I would also,” Bernanke said.

China is the largest creditor to the US, being the top holder of US$739.6 billion in US Treasury bonds as of January, US figures show. It is also the world's largest holder of US dollars as a reserve currency, at more than US$1 trillion.

In such a dominant position, “China appears to be growing more and more assertive over its rights,” currency analyst Andrew Busch of BMO Capital Markets said.

Meanwhile, a top economic official from the EU, whose single currency is gaining an increasing share among central banks as a reserve currency, said the dollar remained unchallenged as the dominant reserve unit.

EU Economic and Monetary Affairs Commissioner Joaquin Almunia said the dollar would remain unchallenged as the top reserve currency even as emerging economies such as China play a more critical role in the global economy.

“The relative economic powers are changing,” he told a news conference at the European Parliament in Strasbourg, France. “But I don't expect major structural changes in the role that the dollar plays today as a reserve currency.”

The debate over the dollar's role comes ahead of the G20 summit next Thursday in London, where world leaders and organizations are to discuss reforming the financial system.
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