France and Russia on Sunday urged a debate about the world's reserve currencies saying the current system, which is dominated by the US dollar, was out of date. However, Russia said at the moment there was no obvious replacement for the US dollar and the euro and European Central Bank Jean-Claude Trichet said it was important that the United States stayed committed to a strong currency.
Leaders from the Group of Eight major industrial nations and the world's main developing economies will hold talks from July 8-10 in the Italian city of L'Aquila. China has been pushing for a debate on reserve currencies at the meeting. "We should explore a better co-ordination of foreign exchange policies which would raise the question over the medium term of the balance of exchange rates and the role of currencies that have changed both as a result of the crisis and the role played by emerging market countries," France's Economy Minister Christine Lagarde told reporters at a conference.
Several emerging market countries have said they want to reconsider the role of the dollar and to see a more diversified international monetary system. "The dollar system or the system based on the dollar and euro have shown that they are flawed. But I am a realist and I understand that today there is no alternative to the dollar or the European currency," Russian President Dmitry Medvedev said in an interview with Italian media. "There should be more reserve currencies. So we consider that we need to think about the creation of regional reserve currencies."
POSSIBLE INDIA CHANGE:
On Friday, Suresh Tendulkar, chairman of the Indian prime minister's economic advisory council, said the weight of the dollar in the basket of currencies that helps set the rate of India's partially convertible rupee currency may be reduced. Up until now, the US dollar had been considered the main reserve currency in India, he said.
"India may change." "I think if you look at the global imbalances that were being talked about today between the surpluses and China and Japan and the deficits of the United States, I think that needs to be corrected. That I think is clear," Tendulkar said.
Asked whether the US dollar should be weaker he said: "I think it is necessary ... it should go down." Asian Development Bank President Haruhiko Kuroda, however, said on Sunday it was important that global imbalances be unwound gradually. ECB's Trichet he hoped the United States would stick by its support of a strong US currency.
"On this issue, I am very, very clear. I have just one message...It is extremely important that the United States of America ... has been ...saying that a strong dollar is in the interests of the United States of America," Trichet said. "I consider that extremely important and I welcome this declaration," he added.
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