Zhou urges sweeping reform

29/03/2009 | Lucien Chauvin, Sid Verma

China’s central bank governor Zhou Xiaochuan yesterday stepped up his calls for a radical overhaul of global governance – including a greater say for developing nations – in a bid to shape next week’s G20 meeting of leading industrialized and developing nations.

China’s central bank governor Zhou Xiaochuan yesterday stepped up his calls for a radical overhaul of global governance – including a greater say for developing nations – in a bid to shape next week’s G20 meeting of leading industrialized and developing nations.
China will insist on “financial sector reform, including regulatory reform, and we expect there maybe some reform agenda for international financial institutions including the Fund, the bank and other development banks,” Zhou said in response to a question from Emerging Markets.
He said China, which has the world’s largest surplus, would give “active” consideration to any request to increase the IMF’s capitalization, while urging “adjustments to increase the voice of emerging markets.”
Leaders of the 20 largest industrial and developing nations are jockeying for influence ahead of a make-or-break summit in London on Thursday that will seek to breathe life into global markets and lay the cornerstones for reform of international finance.
Speaking to reporters in Medellin, Zhou said: “From the medium to the long-term, we need to consider a more diversified, multi-polar financial system. And that is in the interests for many countries, especially the US.”
Zhou, who last week suggested the US dollar could be replaced as the world’s major reserve currency by the IMF’s Special Drawing Rights, said he hopes to meet US Treasury Secretary Tim Geithner in Medellin today.
Zhou’s proposal for monetary reform stems from the idea that the dollar’s status as pre-eminent global reserve currency allowed the US to spend excessively – which has contributed to global economic imbalances at the heart of today’s crisis.
His suggestion also reflected concern about the security of China’s investments in the US and its continued purchases of US Treasuries.
China is now taking the offensive and attempting to set a framework on measures to avoid the systemic risks of global imbalances, after years of American chastisement about the undervalued yuan and China’s high savings rate.
“This Chinese proposal is just a smokescreen for what it is really trying to achieve: greater leverage over the US,” said Simon Johnson, former chief economist at the IMF.
Asked if China intended to push its own currency, the yuan, as an international reserve currency, Zhou said: “It is still a long way to go for the renminbi to play a more important role.”
But he noted: “Some of our neighbour countries would like to use our currency for the purpose of promoting trade especially border trade, tourism and some monetary investments.”
China has recently signed currency-swap agreements with Hong Kong, Malaysia and Indonesia. Zhou said there was growing regional demand for settling some trade in yuan rather than dollars but promoting the Chinese currency as a new global currency was not currently a policy aim.
Asked if China’s slowdown had come to an end, Zhou - who is representing China for the first time as a full member of the IDB at the annual meetings - said: “it still very much depends if this global financial crisis reached bottom. Up to now it is still uncertain. We don’t know yet.”

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