China may have told world leaders it wants a better, more stable global reserve currency system, but analysts say Beijing is in no rush to dethrone the dollar because it has vast dollar-denominated assets. The issue, aired during meetings of the G8 industrial powers and big emerging economies in L'Aquila, Italy, got no mention in official statements and leaders had no real discussion about it, according to Britain's Gordon Brown and several officials. French President Nicolas Sarkozy took the chance, however, to say something that, on the face of it, looks broadly similar to China's line - that the world economic order has changed and the monetary system should do likewise after decades where the dollar was sole point of reference internationally. He has called in the past for fairer exchange rates, notably when European aircraft maker Airbus said euro strength is causing it serious problems. But little has ever come of it. At L'Aquila there was little appetite for a debate many see more as evolution than revolution, a slow shift towards a system of other currencies sharing pride of place with the dollar. The dollar lost a cent at one stage last week when Reuters reported that China wanted this debated in L'Aquila. But it did not react when a Chinese official aired Beijing's position. State Councillor Dai Bingguo told the summit in Italy: “We should have a better system for reserve currency issuance and regulation, so that we can maintain relative stability of major reserve currencies' exchange rates and promote a diversified and rational international reserve currency system.” Britain's Gordon Brown said there was no serious discussion of the issue at meetings focussed more on fighting recession. “But of course it's a discussion that can take place about the long term but the suggestion that there is something that is going to happen in the next few weeks or months is just not realistic,” said the British prime minister. Sarkozy, who has in the past voiced frustration about euro strength making life harder for French exporters, was less coy. “I hope in the coming months we will talk about currencies and the international monetary system,” he said. “We have to ask ourselves: shouldn't a politically multi-polar world correspond to an economically multi-monetary world?” When the dollar was sinking towards lows near $1.50 per euro in late 2007, Sarkozy vented his frustration on trips to the US and China, and he has chided the European Central Bank for remaining aloof. “The (Chinese) yuan is already everyone's problem. The dollar cannot remain solely the problem of others. If we're not careful, monetary disarray could morph into economic war. We would all be its victims,” Sarkozy said on a US trip in 2007. Currency analysts see nothing in the recent news to suggest China is suddenly in a rush. For one, its own currency is not even freely convertible and it is slowly working on deals to facilitate use of the yuan, or renminbi, for trade settlement. Simon Derrick, a currency strategist at Bank of New York Mellon, said China was keen to see a shift away from dollar domination, maybe over the next 10 years - but not now. “The immediate problem for them is a decline in the dollar has an enormous impact on their reserves,” said Derrick, adding that he read Dai's remarks as underlining the need for stability in the exchange rates of major reserve currencies. Bankers believe as much as 70 percent of some $1.95 trillion in China's official foreign exchange reserves is held in the dollar, mostly in the form of US Treasury debt. Brazil has discussed working with China on the use of each other's currencies for trade settlement and could be expected to be supportive of China's strategy. But President Luiz Inacio Lula da Silva did not go out of his way to say so in Italy. “He doesn't want to introduce the dollar question for a simple reason: it's understood the persistence of the dollar as an international reference currency is going to continue for a long period,” said Lula policy advisor Marco Aurelio Garcia. Adam Cole, global head of currency strategy at Royal Bank of Canada, wrote in a research note that reserve diversification was a decade-old phenomenon that would take a another decade or more before any credible alternative emerged. Indeed, there is very little evidence that the pace at which reserves are being diversified out of the dollar is accelerating or decelerating, Cole and other RBC analysts say. Of total estimated central bank reserve holdings, non-dollar currencies have risen to 36 percent from 27 percent in the last decade and the dollar's share has dropped to 64 perent from 73 percent in the same period, the note said. Chinese President Hu Jintao left Italy before the summit began on Wednesday to deal with ethnic violence back home. Dai, representing Beijing, made his statement to leaders of the G8 and the G5 group of major emerging market economies. A Canadian official said China only spoke in general terms. While markets took Dai's remarks in their stride, analysts said such comments will sometimes give dealers something to trade on. “We find that the recent debate over the decline of the USD leadership as global reserve unit is a bit exaggerated,” said UniCredit bank's Aurelio Maccario. “This may offer ‘noise traders' an excuse to amplify EUR-USD volatility, but neither the euro, nor the renminbi nor the IMF's SDR will challenge the USD supremacy in the foreseeable future.”
