China says reserve currency countries need supervision

By Kirby Chien and Eadie Chen, Reuters

BOAO, China — Chinese Premier Wen Jiabao said on Saturday that the economic polices of countries that issue global reserve currencies require closer supervision as part of building a diversified international monetary system.

Wen and central bank governor Zhou Xiaochuan also cautioned against jumping to the conclusion that China is already on the path to economic recovery, after data issued on Thursday showed signs of an upturn in momentum.

Wen’s currency comments, an apparent reference to U.S. economic management that Beijing has blamed in part for the global financial crisis, were twinned with a pledge to promote more international use of the Chinese yuan.

Wen did not mention the United States by name but he has expressed concern in recent months about the safety of Chinese investments in U.S. dollar assets.

“We should strengthen the supervision of the economic policies of the main reserve currency economies and push forward the establishment of a diversified international monetary system,” he said in his opening address to the Boao Forum for Asia, held annually on the Chinese island province of Hainan.

It was the second time this month that China has made such an appeal, following President Hu Jintao’s call at the London G20 summit earlier this month for the International Monetary Fund to strengthen its oversight of reserve currency-issuing economies.

China caused a stir in March when central bank chief Zhou floated the idea of reducing reliance on the U.S. dollar as the world’s primary unit of foreign exchange by developing the Special Drawing Rights (SDRs) issued by the IMF.

But at the London G20 forum, China did not call for immediate discussion of the subject.

Speaking at the Boao forum on Saturday, Zhou said that his proposal on SDRs was intended mainly to contribute his thoughts on the root cause of the financial crisis and what needed to be done in the long run to prevent such situations in the future.

He was not suggesting that drastic changes to the financial system needed to be taken in the short term, Zhou said.

“It’s just like treating a patient. First we need to make a diagnosis. Then comes treatment,” Zhou told the forum.

“But right now, not all the doctors have the same diagnosis. … Unfortunately, it seems that there is still no consensus among various countries about the source of the financial crisis,” he said.

Premier Wen said China would look at expanding its currency swap agreements, which are seen as a step toward eventually making the yuan more of a global reserve asset.

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