Page last updated at 18:06 GMT, Wednesday, 25 March 2009

US defends dollar as key currency

China has the most reserves of dollars worldwide

US Treasury Secretary Timothy Geithner has defended the dollar as the world reserve currency, a day after China called for it to be replaced.

He said the dollar was the world's dominant reserve currency and was likely to remain for a long time.

On Tuesday, China's central bank called for a new reserve currency run by the International Monetary Fund.

Central bank governor Zhou Xiaochuan said the recent crisis revealed the dangers of relying on one currency.

Foreign currency held by a government or a central bank
Used to pay foreign debt obligations or influence exchange rates
The dollar is viewed as the world's reserve currency as the vast majority of reserves are held in the US currency

Earlier this month, Mr Zhou said the IMF's Special Drawing Rights basket could be used as a reserve currency, which would include dollars, euros, sterling and yen.

Mr Geithner said he had not yet read Mr Zhou's plans but said: "As I understand it, it's a proposal designed to increase the use of the IMF's Special Drawing Rights."

"I am actually quite open to that suggestion," he said.

China, which holds the most currency reserves in the world worth some $2tn (£1.37tn), has often complained about the dollar's volatility.

Recently, China has shown concerns that the US's steps to rescue its economy could weaken the dollar's value.

UK Prime Minister also entered the debate on the dollar on Wednesday, saying he also rejected China's proposal.

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