US, China want dollar to remain reserve currency: Geithner
02 Jun 2009
It is in the interest of both China and the United States that the dollar remains the world's main reserve currency for a long time to come, US treasury secretary Timothy Geithner said.
His comments were aimed at countering an idea floated earlier by to Chinese central bank governor Zhou Xiaochuan of replacing the US dollar with the IMF's Special Drawing Rights as the world's main reserve currency.
"I believe the Chinese expect the dollar to be the principal reserve currency for a long period of time, as do we," Geithner said at the conclusion of two days of high-level talks in Beijing.
Geithner said Chinese officials should be more interested in America's economic outlook rather than the government's ballooning budget deficit.
"They're interested in where we are in recovery, both in the US and China and around the world, and what we're doing to carry forward reforms we committed to at the G20," he said.
Chinese officials have expressed concern that heavy deficit spending combined with a loose monetary policy could spark inflation, eroding the value of China's US bond holdings.
"We have a strong, independent Fed and I am completely confident they have the ability to do their job under the law, which is to keep inflation stable and low over time, and that they will be able to - and certainly intend to -- unwind these exceptional measures as soon as they have served their purpose," Geithner said.
China and the US are committed to putting in place a stronger framework of standards for supervision and regulation of the financial system.
As partners in the Financial Stability Forum of the IMF, ''We will have the chance together to help redesign global standards for capital requirements, stronger oversight of global markets like derivatives, better tools for resolving future financial crises, and measures to reduce the opportunities for regulatory arbitrage,'' he said.
''We also committed to an ambitious program of reform of the IMF and other international financial institutions. Our common objective is to reform the governance of these institutions to make them more representative of the shifting balance of economic and financial activity in the world, to strengthen their capacity to prevent future crisis, with stronger surveillance of macroeconomic, exchange rate, and financial policies, and to equip them with a stronger financial capacity to respond to future crises,'' he said.
The United States, he said, will fully support having China play a role in the principal cooperative arrangements that help shape the international system, a role that is commensurate with China's importance in the global economy.
While China is already too important to the global economy not to have a full seat at the international table, he said, China and the US must cooperate to assure that the global trade and investment environment remains open, and that opportunities continue to expand.
The global commitment to trade liberalisation and increasingly open investment played a critical role in this process in the industrialised world, in East Asia, and, since 1978, in China, Geithner pointed out.
''As we go through the severe stresses of this crisis, we must not turn our backs on open trade and investment - for ourselves and for those who have yet to experience the fruits of growth and development, '' he said.
The United States, China, and the other members of the G20 have committed to not resort to protectionist measures by raising trade and investment barriers and to work toward a successful conclusion to the Doha Development Round.
In the last few years the frequency, intensity, and importance of US-China economic engagements have multiplied. ''Our engagement should be conducted with mutual respect for the traditions, values, and interests of China and the United States,'' he said.
''China and the United States individually, and together, are so important in the global economy and financial system that what we do has a direct impact on the stability and strength of the international economic system,'' he said.
Other nations have a legitimate interest in our policies and the ways in which we work together, and we each have an obligation to ensure that our policies and actions promote the health and stability of the global economy and financial system, he said, adding, ''We come together because we have shared interests and responsibilities. We also have our own national interests,''
China, he said, has benefited hugely from open trade and investment, and the ability to greatly increase its exports to the rest of the world. In turn, we expect increased opportunities to export to and invest in the Chinese economy, he added.
Global problems will not be solved without US-China cooperation. That goes for the entire range of issues that face our world from economic recovery and financial repair to climate change and energy policy.
Geithner today announced the appointment of David Loevinger as the department's executive secretary and senior coordinator for China affairs and the strategic and economic dialogue and intends to name David Dollar as economic and financial emissary to China.
Dollar currently serves as the country director for China and Mongolia at the World Bank and has been based in Beijing since 2004.
