Geithner, Bernanke reject China currency proposal
Head of China’s central bank says a new reserve currency should be created
By Polya Lesova, MarketWatch
Last update: 3:41 p.m. EDT March 24, 2009

NEW YORK (MarketWatch) — Federal Reserve Board Chairman Ben Bernanke and Treasury Secretary Timothy Geithner flatly rejected on Tuesday a call from a senior Chinese official to drop the dollar as the world’s key reserve currency.

Zhou Xiaochuan, head of the People’s Bank of China, proposed the creation a new international reserve currency in an essay published on the central bank’s Web site on Monday.

The proposal is the latest sign of tension between China and the U.S. over important global economic matters. Zhou is expected to attend the Group of 20 meeting in London on April 2 where reform of the global financial system is on the table. “The desirable goal of reforming the international monetary system, therefore, is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies,” Zhou wrote in the essay, according to its English translation on the central bank’s Web site.

A super-sovereign reserve currency managed by a global institution could be used to both create and control the global liquidity, Zhou wrote.

“And when a country’s currency is no longer used as the yardstick for global trade and as the benchmark for other currencies, the exchange rate policy of the country would be far more effective in adjusting economic imbalances,” he said. “This will significantly reduce the risks of a future crisis and enhance crisis management capability.”