China will support dollar in short term, state banker says

Section:

By Zhou Xin and Simon Rabinovitch
Reuters
Sunday, March 7, 2010

http://www.reuters.com/article/idUSTRE6270PU20100308

BEIJING -- Any speculation that China might stop supporting the dollar in the next few years is absolute nonsense, a top state banker said.

Li Ruogu, chairman of Export-Import Bank of China, a lender tasked with supporting the country's foreign investments, said in a group interview that a collapse in the dollar's value would damage Chinese interests.

China should focus instead on trying to stabilize the dollar and on preserving its status as the leading global currency, said Li, a former deputy central bank governor.

Asked whether China should continue to back the dollar, he said: "I believe that, for now, supporting the dollar's stability and its international currency status is good for China."

He added: "As China has a huge sum of foreign exchange reserves, a dollar collapse would bring nothing good to China."

China has $2.4 trillion in official reserves, the largest stockpile in the world, and bankers believe about two-thirds of the total is invested in dollar assets.

Li said the Special Drawing Right (SDR), the International Monetary Fund's unit of account, presented a viable super-sovereign alternative to the dollar in the long term as a global reserve currency.

"But even if the system has to change, it should be a smooth transition process," Li said.

Central bank governor Zhou Xiaochuan caused a stir a year ago by proposing that the SDR might eventually displace the dollar as the world's main reserve currency.

But Li said: "In the short run, maintaining a stable dollar is good for everyone. It is good for the United States, good for China, and good for the world."

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