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China calls for new global currency

March 25, 2009|Associated Press

BEIJING — China is calling for a new global currency to replace the dominant dollar, showing a growing assertiveness on revamping the world economy.

The surprise proposal -- made by Beijing's central bank governor the week before leaders of the Group of 20 major economies meet April 2 in London to discuss the financial crisis -- reflects China's unease about its vast holdings of U.S. government bonds and adds to Chinese pressure to overhaul a global financial system dominated by the dollar and Western governments.

The U.S. and the European Union brushed off the idea.

The world economic crisis shows the "inherent vulnerabilities and systemic risks in the existing international monetary system," Zhou Xiaochuan said in an essay released by the People's Bank of China.

He called for creating a currency made up of a basket of national currencies and controlled by the International Monetary Fund, saying it would help "achieve the objective of safeguarding global economic and financial stability."

China has long been uneasy about relying on the dollar for the bulk of its trade and to store foreign reserves. Premier Wen Jiabao publicly appealed to Washington this month to avoid any response to the financial crisis that might weaken the dollar and the value of Beijing's estimated $1-trillion portfolio of Treasuries and other U.S. government debt.

For decades, the dollar has been the world's most widely used currency. Many governments hold a large portion of their reserves in dollars. Crude oil and many commodities are priced in dollars. Business deals around the world are done in dollars.

But the financial crisis has highlighted how America's economic problems -- and by extension the dollar -- can wreak havoc on nations around the world.

In Washington, Federal Reserve Chairman Ben S. Bernanke and Treasury Secretary Timothy F. Geithner rejected China's call for a global alternative to the dollar's role as the international reserve currency.

And the European Union's top economic official said the dollar's role was secure despite China's proposal.

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