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Can’t rely on the dollar,warns Medvedev

Russian president Dmitri A Medvedev,who rarely misses a chance to accuse the United States of causing the global financial crisis....

Written by Reuters | St Petersburg |
June 7, 2009 2:25:09 am

Russian president Dmitri A Medvedev,who rarely misses a chance to accuse the United States of causing the global financial crisis,told an economic forum on Friday that wobbly American financial policy had made the dollar an undesirable currency for reserves held by central banks. Russia,along with China and other nations,has floated the idea of forming a supernational currency to supplant the dollar,perhaps using the so-called special drawing rights units of the International Monetary Fund as a basis.

Given the weaknesses in the American economy,Medvedev said,relying on the dollar as extensively as is the case today could mean building a postcrisis financial system on legs of clay. Banks should look also at regional currencies,like the ruble,he said.

Wresting some control of the world’s financial architecture from the United States is a theme often raised by Russia,and even more so during the global recession. Russian authorities’ comments on the issue have at times helped depress dollar exchange rates with other currencies because of concerns that central banks would dump the currency. But independent economists generally dismiss Moscow’s position — and the offering of the ruble as a reserve currency — as highly unrealistic,particularly given the wobbly recent history of the ruble.

“The artificial and monopolar support of a monopoly on key segments of the world economy became the fundamental cause of the crisis,” Medvedev said in a keynote address to the St Petersburg Economic Forum,an annual opportunity for Russian authorities to lay out their economic policy thinking and court foreign investors. China’s yuan could become a world reserve currency after it becomes fully convertible,a process that might take about 10 years,Russian finance minister Alexei Kudrin said on Saturday.

China has slowly started to use its economic might to carve out a larger role for the yuan ,which is still not fully convertible.

“I think the shortest route would be if China liberalised its economy and allowed the convertibility of the yuan,” said Kudrin,a close ally of prime minister Vladimir Putin.

In a nod to Russia’s role as one of the world’s 20 largest economies,whose leaders have met to coordinate a response to the downturn,Medvedev also struck a constructive note,saying that all governments had reacted well to the crisis.

Medvedev suggested that Russia would like to see more substantive change — including an end to such an oversize role for the dollar. Russia’s economic critique of the dollar,continuing for several years,comes alongside increased political tensions with the United States. Yet Russia’s central bank,too,keeps about 50 per cent of its reserves in dollars. To stabilize exchange rates,Medvedev said,governments should create a new reserve currency. Russia has backed an expanded role for special drawing rights units of the International Monetary Fund.

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