China presses G20 reform plans

By Michael Bristow
BBC News, Beijing

Mr Zhou (L) wants an international currency to replace the dollar

China has increased the pressure on world leaders just days before the G20 world summit by calling for an overhaul of the global financial system.

Chinese officials want a new global reserve currency and reforms of international financial institutions to give developing nations more power.

This comes a week before world leaders are due to meet in London to discuss how to overcome the economic crisis.

Confidence

That crisis has not affected China as badly as most Western nations, and analysts say this has given the country the confidence to push for change.

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"China is holding all the cards - and it knows that," said Tim Condon, head of Asia research at ING Financial Markets in Singapore.

The comments about a new reserve currency were made by Zhou Xiaochuan, governor of the People's Bank of China, the country's central bank.

In a notice posted on the bank's website, he said: "The crisis called again for creative reform of the existing international monetary system towards an international reserve currency."

He added: "This will significantly reduce the risks of a future crisis and enhance crisis management capability."

A reserve currency is one that is used in international trade and held by governments as part of their foreign exchange reserves.

The US dollar is currently the world's dominant currency.

But Governor Zhou said globalisation suffers if the world relies on a single national currency as a reserve currency.

Reforming the IMF

The global economic downturn is hitting China's growth and exports

The comments come just days before the G20 summit begins on 2 April.

The main aim of the summit is to restore confidence in the world's economic system in the wake of the worst financial crisis in decades.

China organised a press briefing on Monday to outline its summit expectations.

He Yafei, a vice-foreign minister, said Beijing wanted further strengthening of global financial markets to boost confidence.

He said G20 members should also reaffirm their opposition to protectionism and uphold their financial commitments to the world's poorer countries.

"Efforts should be made to achieve substantial progress in the reform of international financial institutions," he added.

"[That should] increase the representation and say of emerging markets and developing countries."

China wants developing nations to have a bigger say in the International Monetary Fund, the global financial organisation that helps countries in economic difficulties.

The IMF's 185 members are all allocated a quota, based on their relative size in the global economy.

This quota is used to calculate how much money each country has to give to the IMF and, importantly, it determines their voting power.

Researcher Yi Xianrong, of the Chinese Academy of Social Sciences, made an even stronger call for reform of the IMF in a comment piece in the state-run newspaper China Daily on Tuesday.

He wrote: "Being the world's third-largest economy and the largest foreign reserves holder, China should get its due place in the monetary body."

There should be a change in the power structure, which is currently dominated by the US and Britain, he said.

Emboldened

China has announced a big stimulus plan to boost the economy

Asian financial expert Tim Condon said the current economic crisis had emboldened the Chinese to push for change in the world economic structure.

"It's got a major seat at the table at the summit because investors and governments think, through its stimulus package, China is somehow going to rescue the world," he said.

In this current climate, Mr Condon believes other countries will temper their criticism of China at the summit.

He does not expect the US to repeat remarks it has regularly made over recent years that the yuan, China's currency, is being kept at an artificially low level by Beijing to help its own exporters.

Zhao Xijun, of Beijing's Remin University, agreed that China was pushing for change to the world's financial institutions at this summit.

"If these organisations want China to play a more important role or contribute more, China needs more rights and power in these organisations," said the deputy dean of the university's school of finance.

He said other developing countries, such as Brazil, India and South Africa, would also be demanding a bigger role.