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Greenback still top currency: Stephen Roach

The US dollar will keep its status as the "world currency" for 15 to 20 years, said Stephen Roach, chairman of Morgan Stanley Asia Ltd, after Chinese officials signaled plans to diversify from the slumping US currency.

"The yen, the euro, the sterling, the Swiss franc will take on greater roles but these still don't come close to commanding the kind of security that the US dollar does in investors' minds," Roach, former global chief economist at Morgan Stanley, the second-biggest US securities firm, said in an interview in Beijing.

"It will take 15 to 20 years" before its status erodes, he said.

The US dollar has fallen against all 16 of the most actively traded currencies this year, reaching record lows against the euro and Canadian dollar on Wednesday as Chinese officials signaled plans to diversify the nation's US$1.43 trillion of foreign exchange reserves.

The dollar is "losing its status as the world currency," People's Bank of China vice director Xu Jian (徐堅) told a conference in Beijing on Wednesday.

The greenback, trading at US$1.4652 per euro at 8:01am in London, fell as low as US$1.4731 on Wednesday on concern the US Federal Reserve will cut interest rates for a third time this year.

The share of global currency reserves fell to 64.8 percent in the second quarter, down from 66.1 percent in the same period a year earlier, IMF statistics show. The euro's share increased to an all-time high of 25.6 percent from 24.8 percent a year earlier. The pound's share is at 4.7 percent and the yen's at 2.8 percent.

"We will favor stronger currencies over weaker ones, and will readjust accordingly," Cheng Siwei (成思危), vice chairman of China's National People's Congress, said on Wednesday.

The Chinese comments echo those of former US Fed chairman Alan Greenspan who on Oct. 1 said the dollar's dominance as a reserve currency is being eroded as the euro and the pound become more attractive to investors.

Chinese investors reduced holdings of US Treasuries by 5 percent to US$400 billion in the five months to the end of August.

China, Japan and Taiwan sold Treasuries at the fastest pace in at least five years in August as losses linked to US subprime mortgages sparked a slump in the dollar. Still, overseas investors own more than half of the US$4.4 trillion in marketable US government debt outstanding, up from a third in 2001, data compiled by the US Treasury Department show.

"Dollar-denominated assets held around the world are well in excess of America's share" of world gross domestic product, Roach said. "The dollar's status is very much intact."

He said investors had not lost confidence in the dollar but were "dumping" it on concerns over the US current-account deficit, which reached US$197.1 billion in the first quarter before narrowing to US$190.8 billion in the second.
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