Leaders' statement from the G20 summit in London

1. We, the Leaders of the Group of Twenty, met in London on 2 April 2009.

2. We face the greatest challenge to the world economy in modern times; a crisis which has deepened since we last met, which affects the lives of women, men, and children in every country, and which all countries must join together to resolve. A global crisis requires a global solution.
3. We start from the belief that prosperity is indivisible; that growth, to be sustained, has to be shared; and that our global plan for recovery must have at its heart the needs and jobs of hard-working families, not just in developed countries but in emerging markets and the poorest countries of the world too; and must reflect the interests, not just of today's population, but of future generations too. We believe that the only sure foundation for sustainable globalisation and rising prosperity for all is an open world economy based on market principles, effective regulation, and strong global institutions.
4. We have today therefore pledged to do whatever is necessary to:
· restore confidence, growth, and jobs;
· repair the financial system to restore lending;
· strengthen financial regulation to rebuild trust;
· fund and reform our international financial institutions to overcome this crisis and prevent future ones;
· promote global trade and investment and reject protectionism, to underpin prosperity; and
· build an inclusive, green, and sustainable recovery.
By acting together to fulfil these pledges we will bring the world economy out of recession and prevent a crisis like this from recurring in the future.
5. The agreements we have reached today, to treble resources available to the IMF to $750 billion, to support a new SDR [IMF special drawing rights] allocation of $250 billion, to support at least $100 billion of additional lending by the MDBs [Multilateral Development Banks], to ensure $250 billion of support for trade finance, and to use the additional resources from agreed IMF gold sales for concessional finance for the poorest countries, constitute an additional $1.1 trillion programme of support to restore credit, growth and jobs in the world economy. Together with the measures we have each taken nationally, this constitutes a global plan for recovery on an unprecedented scale.
Restoring growth and jobs
6. We are undertaking an unprecedented and concerted fiscal expansion, which will save or create millions of jobs which would otherwise have been destroyed, and that will, by the end of next year, amount to $5 trillion, raise output by 4 per cent, and accelerate the transition to a green economy. We are committed to deliver the scale of sustained fiscal effort necessary to restore growth.
7. Our central banks have also taken exceptional action. Interest rates have been cut aggressively in most countries, and our central banks have pledged to maintain expansionary policies for as long as needed and to use the full range of monetary policy instruments, including unconventional instruments, consistent with price stability.
8. Our actions to restore growth cannot be effective until we restore domestic lending and international capital flows. We have provided significant and comprehensive support to our banking systems to provide liquidity, recapitalise financial institutions, and address decisively the problem of impaired assets. We are committed to take all necessary actions to restore the normal flow of credit through the financial system and ensure the soundness of systemically important institutions, implementing our policies in line with the agreed G20 framework for restoring lending and repairing the financial sector.
9. Taken together, these actions will constitute the largest fiscal and monetary stimulus and the most comprehensive support programme for the financial sector in modern times. Acting together strengthens the impact and the exceptional policy actions announced so far must be implemented without delay. Today, we have further agreed over $1 trillion of additional resources for the world economy through our international financial institutions and trade finance.
10. Last month the IMF estimated that world growth in real terms would resume and rise to over 2 percent by the end of 2010. We are confident that the actions we have agreed today, and our unshakeable commitment to work together to restore growth and jobs, while preserving long-term fiscal sustainability, will accelerate the return to trend growth. We commit today to taking whatever action is necessary to secure that outcome, and we call on the IMF to assess regularly the actions taken and the global actions required.
11. We are resolved to ensure long-term fiscal sustainability and price stability and will put in place credible exit strategies from the measures that need to be taken now to support the financial sector and restore global demand. We are convinced that by implementing our agreed policies we will limit the longer-term costs to our economies, thereby reducing the scale of the fiscal consolidation necessary over the longer term.
12. We will conduct all our economic policies cooperatively and responsibly with regard to the impact on other countries and will refrain from competitive devaluation of our currencies and promote a stable and well-functioning international monetary system. We will support, now and in the future, to candid, even-handed, and independent IMF surveillance of our economies and financial sectors, of the impact of our policies on others, and of risks facing the global economy.
Strengthening financial supervision and regulation
13. Major failures in the financial sector and in financial regulation and supervision were fundamental causes of the crisis. Confidence will not be restored until we rebuild trust in our financial system. We will take action to build a stronger, more globally consistent, supervisory and regulatory framework for the future financial sector, which will support sustainable global growth and serve the needs of business and citizens.
14. We each agree to ensure our domestic regulatory systems are strong. But we also agree to establish the much greater consistency and systematic cooperation between countries, and the framework of internationally agreed high standards, that a global financial system requires. Strengthened regulation and supervision must promote propriety, integrity and transparency; guard against risk across the financial system; dampen rather than amplify the financial and economic cycle; reduce reliance on inappropriately risky sources of financing; and discourage excessive risk-taking. Regulators and supervisors must protect consumers and investors, support market discipline, avoid adverse impacts on other countries, reduce the scope for regulatory arbitrage, support competition and dynamism, and keep pace with innovation in the marketplace.
15. To this end we are implementing the Action Plan agreed at our last meeting, as set out in the attached progress report. We have today also issued a Declaration, Strengthening the Financial System. In particular we agree:
· to establish a new Financial Stability Board (FSB) with a strengthened mandate, as a successor to the Financial Stability Forum (FSF), including all G20 countries, FSF members, Spain, and the European Commission;
· that the FSB should collaborate with the IMF to provide early warning of macroeconomic and financial risks and the actions needed to address them;
· to reshape our regulatory systems so that our authorities are able to identify and take account of macro-prudential risks;
· to extend regulation and oversight to all systemically important financial institutions, instruments and markets. This will include, for the first time, systemically important hedge funds;
· to endorse and implement the FSF's tough new principles on pay and compensation and to support sustainable compensation schemes and the corporate social responsibility of all firms;
· to take action, once recovery is assured, to improve the quality, quantity, and international consistency of capital in the banking system. In future, regulation must prevent excessive leverage and require buffers of resources to be built up in good times;
· to take action against non-cooperative jurisdictions, including tax havens. We stand ready to deploy sanctions to protect our public finances and financial systems. The era of banking secrecy is over. We note that the OECD has today published a list of countries assessed by the Global Forum against the international standard for exchange of tax information;
· to call on the accounting standard setters to work urgently with supervisors and regulators to improve standards on valuation and provisioning and achieve a single set of high-quality global accounting standards; and
· to extend regulatory oversight and registration to Credit Rating Agencies to ensure they meet the international code of good practice, particularly to prevent unacceptable conflicts of interest.
16. We instruct our Finance Ministers to complete the implementation of these decisions in line with the timetable set out in the Action Plan. We have asked the FSB and the IMF to monitor progress, working with the Financial Action Taskforce and other relevant bodies, and to provide a report to the next meeting of our Finance Ministers in Scotland in November.
Strengthening our global financial institutions
17. Emerging markets and developing countries, which have been the engine of recent world growth, are also now facing challenges which are adding to the current downturn in the global economy. It is imperative for global confidence and economic recovery that capital continues to flow to them. This will require a substantial strengthening of the international financial institutions, particularly the IMF. We have therefore agreed today to make available an additional $850 billion of resources through the global financial institutions to support growth in emerging market and developing countries by helping to finance counter-cyclical spending, bank recapitalisation, infrastructure, trade finance, balance of payments support, debt rollover, and social support. To this end:
· we have agreed to increase the resources available to the IMF through immediate financing from members of $250 billion, subsequently incorporated into an expanded and more flexible New Arrangements to Borrow, increased by up to $500 billion, and to consider market borrowing if necessary; and
· we support a substantial increase in lending of at least $100 billion by the Multilateral Development Banks (MDBs), including to low income countries, and ensure that all MDBs, including have the appropriate capital.
18. It is essential that these resources can be used effectively and flexibly to support growth. We welcome in this respect the progress made by the IMF with its new Flexible Credit Line (FCL) and its reformed lending and conditionality framework which will enable the IMF to ensure that its facilities address effectively the underlying causes of countries' balance of payments financing needs, particularly the withdrawal of external capital flows to the banking and corporate sectors. We support Mexico's decision to seek an FCL arrangement.
19. We have agreed to support a general SDR allocation which will inject $250 billion into the world economy and increase global liquidity, and urgent ratification of the Fourth Amendment.
20. In order for our financial institutions to help manage the crisis and prevent future crises we must strengthen their longer term relevance, effectiveness and legitimacy. So alongside the significant increase in resources agreed today we are determined to reform and modernise the international financial institutions to ensure they can assist members and shareholders effectively in the new challenges they face. We will reform their mandates, scope and governance to reflect changes in the world economy and the new challenges of globalisation, and that emerging and developing economies, including the poorest, must have greater voice and representation. This must be accompanied by action to increase the credibility and accountability of the institutions through better strategic oversight and decision making. To this end:
· we commit to implementing the package of IMF quota and voice reforms agreed in April 2008 and call on the IMF to complete the next review of quotas by January 2011;
· we agree that, alongside this, consideration should be given to greater involvement of the Fund's Governors in providing strategic direction to the IMF and increasing its accountability;
· we commit to implementing the World Bank reforms agreed in October 2008. We look forward to further recommendations, at the next meetings, on voice and representation reforms on an accelerated timescale, to be agreed by the 2010 Spring Meetings;
· we agree that the heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based selection process; and
· building on the current reviews of the IMF and World Bank we asked the Chairman, working with the G20 Finance Ministers, to consult widely in an inclusive process and report back to the next meeting with proposals for further reforms to improve the responsiveness and adaptability of the IFIs.
21. In addition to reforming our international financial institutions for the new challenges of globalisation we agreed on the desirability of a new global consensus on the key values and principles that will promote sustainable economic activity. We support discussion on such a charter for sustainable economic activity with a view to further discussion at our next meeting. We take note of the work started in other fora in this regard and look forward to further discussion of this charter for sustainable economic activity.
Resisting protectionism and promoting global trade and investment
22. World trade growth has underpinned rising prosperity for half a century. But it is now falling for the first time in 25 years. Falling demand is exacerbated by growing protectionist pressures and a withdrawal of trade credit. Reinvigorating world trade and investment is essential for restoring global growth. We will not repeat the historic mistakes of protectionism of previous eras. To this end:
· we reaffirm the commitment made in Washington: to refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organisation (WTO) inconsistent measures to stimulate exports. In addition we will rectify promptly any such measures. We extend this pledge to the end of 2010;
· we will minimise any negative impact on trade and investment of our domestic policy actions including fiscal policy and action in support of the financial sector. We will not retreat into financial protectionism, particularly measures that constrain worldwide capital flows, especially to developing countries;
· we will notify promptly the WTO of any such measures and we call on the WTO, together with other international bodies, within their respective mandates, to monitor and report publicly on our adherence to these undertakings on a quarterly basis;
· we will take, at the same time, whatever steps we can to promote and facilitate trade and investment; and
· we will ensure availability of at least $250 billion over the next two years to support trade finance through our export credit and investment agencies and through the MDBs. We also ask our regulators to make use of available flexibility in capital requirements for trade finance.
23. We remain committed to reaching an ambitious and balanced conclusion to the Doha Development Round, which is urgently needed. This could boost the global economy by at least $150 billion per annum. To achieve this we are committed to building on the progress already made, including with regard to modalities.
24. We will give renewed focus and political attention to this critical issue in the coming period and will use our continuing work and all international meetings that are relevant to drive progress.
Ensuring a fair and sustainable recovery for all
25. We are determined not only to restore growth but to lay the foundation for a fair and sustainable world economy. We recognise that the current crisis has a disproportionate impact on the vulnerable in the poorest countries and recognise our collective responsibility to mitigate the social impact of the crisis to minimise long-lasting damage to global potential. To this end:
· we reaffirm our historic commitment to meeting the Millennium Development Goals and to achieving our respective ODA [Overseas Development Agencies] pledges, including commitments on Aid for Trade, debt relief, and the Gleneagles commitments, especially to sub-Saharan Africa;
· the actions and decisions we have taken today will provide $50 billion to support social protection, boost trade and safeguard development in low income countries, as part of the significant increase in crisis support for these and other developing countries and emerging markets;
· we are making available resources for social protection for the poorest countries, including through investing in long-term food security and through voluntary bilateral contributions to the World Bank's Vulnerability Framework, including the Infrastructure Crisis Facility, and the Rapid Social Response Fund;
· we have committed, consistent with the new income model, that additional resources from agreed sales of IMF gold will be used, together with surplus income, to provide $6 billion additional concessional and flexible finance for the poorest countries over the next 2 to 3 years. We call on the IMF to come forward with concrete proposals at the Spring Meetings;
· we have agreed to review the flexibility of the Debt Sustainability Framework and call on the IMF and World Bank to report to the IMFC [International Monetary and Financial Committee] and Development Committee at the Annual Meetings; and
· we call on the UN, working with other global institutions, to establish an effective mechanism to monitor the impact of the crisis on the poorest and most vulnerable.
26. We recognise the human dimension to the crisis. We commit to support those affected by the crisis by creating employment opportunities and through income support measures. We will build a fair and family-friendly labour market for both women and men. We therefore welcome the reports of the London Jobs Conference and the Rome Social Summit and the key principles they proposed. We will support employment by stimulating growth, investing in education and training, and through active labour market policies, focusing on the most vulnerable. We call upon the ILO, working with other relevant organisations, to assess the actions taken and those required for the future.
27. We agreed to make the best possible use of investment funded by fiscal stimulus programmes towards the goal of building a resilient, sustainable, and green recovery. We will make the transition towards clean, innovative, resource efficient, low carbon technologies and infrastructure. We encourage the MDBs to contribute fully to the achievement of this objective. We will identify and work together on further measures to build sustainable economies.
28. We reaffirm our commitment to address the threat of irreversible climate change, based on the principle of common but differentiated responsibilities, and to reach agreement at the UN Climate Change conference in Copenhagen in December 2009.
Delivering our commitments
29. We have committed ourselves to work together with urgency and determination to translate these words into action. We agreed to meet again before the end of this year to review progress on our commitments.

(BBC)

At G20, China Takes Stage as Global Economic Power

BEIJING — Let the rest of the world dither over whether this week’s economic summit meeting in London will save the planet from economic collapse.

China arrives at the meeting with a sense of momentum, riding a wave of nationalism and boasting an economy that, more than any other, is surfing the trough of a crippling recession. While other major economies shrink this year, China’s is expected by some economists to pass Japan’s as the world’s second largest, if it has not already.

The most talked-about new book here, “China Is Unhappy,” combines hypernationalism with biting criticism of Western mismanagement and of China’s reluctance to grasp its place in history.

China’s normally faceless vice president, Xi Jinping, achieved cult status in late February after cameras caught him in an unguarded moment in Mexico, attacking “foreigners who had eaten their fill and had nothing better to do, pointing their fingers at our affairs.”

It has not dampened this spirit that China — and its $2 trillion in exchange reserves — are viewed around the world as the solution to a host of problems, whether by shoring up the capital base of the International Monetary Fund or by becoming a bigger engine of growth for Asian economies long dependent on the United States market.

Yet even as Presidents Hu Jintao and Obama had their first meeting on Wednesday on the sidelines of the summit proceedings, the Chinese appeared torn between seizing their moment in the geopolitical spotlight and shying from it.

Government censors quickly deleted Mr. Xi’s remarks from Chinese news reports last month. On Wednesday, the front page of China Daily, the English-language newspaper that telegraphs government positions to the outside world, warned that China “is not as strong an economy as some people think.”

“Bailing out China is our most important contribution to bail out the world,” Tang Min, an economist at the state-financed China Development Research Foundation, was quoted as saying.

Such is the quandary of a nation whose rise to power appears both inevitable and, in the view of many experts, still a bit premature.

“China is a major global economy now. That is a fundamental reality,” Chu Shulong, who directs the Institute of Strategic Studies at Tsinghua University in Beijing, said in an interview. “What China says and does has an effect on international finance, international economics and other economies.”

But just as real, Mr. Chu and others said, are the factors that hamstring China: widespread poverty, authoritarian rule, a culture shrouded by decades of isolation and poorly understood intentions. China’s global ambitions are unlikely to be realized until it resolves those issues.

Even then, China’s economic fortunes remain deeply entangled with those of the United States, its biggest customer, rival, debtor and still — by far — the world’s biggest economy.

So although Beijing may agitate for changes in the global financial structure, and relish some schadenfreude at Washington’s expense, its interests lie very much in getting America back on its economic feet.

That does not negate China’s newly enhanced status. With most of the world in financial collapse, China’s economy has suddenly become too big — and too healthy, expected to grow by at least 6.5 percent this year — for the rest of the world to ignore.

Evidence of China’s ascension is everywhere. Three years ago, China did not have a single bank among the world’s top 20, measured by market capitalization. Today the top three are Chinese. (In 2006, the United States had 7 of the top 20 banks, including the top 2; today it has 3, and the biggest, Morgan Stanley, is rated fifth.)

China’s government-owned enterprises are buying companies, technology and resources worldwide. This year they have spent $13 billion in Europe, and plan new investments in the United States. China has struck long-term oil contracts with Brazil and Russia, and is angling for a more than $20 billion stake in three Australian mining companies.

China holds $1 trillion in United States government debt, and that is but half the foreign reserves generated by its huge trade surplus and investment inflows. The rest of the West owes China money, too.

Just as clearly, China harbors global ambitions. Military spending has grown for years at a double-digit clip, though as a share of gross domestic product, it is half of the United States’ military spending. China is slowly building a blue-water navy, and in December it sent three ships to the waters off Somalia to patrol against pirates, in the first modern active deployment of its warships beyond its home waters.

Foreign analysts uniformly say they are struck by China’s new assertiveness in diplomatic and military affairs, from tart critiques of American fiscal policy to verbal sparring over control of the South China Sea.

Kenneth G. Lieberthal, a Brookings Institution scholar who oversaw White House Asia policy from 1998 to 2000, said the Chinese traditionally deferred to Washington on major economic and strategic issues, assenting or differing only after Washington made its case.

But “in meetings with the Chinese on several issues in the last two months, I’ve been quite surprised that Chinese are sitting there talking the way you would expect a major power to talk,” he said. “They are beginning to appreciate that when countries emerge from this current economic crisis, China is likely to be either the first to emerge or right after the U.S., and that China will be one of the very few countries at the end of this crisis to emerge without having high levels of government debt.”

“There is a palpable change taking place here,” Mr. Lieberthal added, “with a sense of greater confidence that China has now become an important place and needs to act that way.”

But economic importance does not automatically translate into geopolitical heft. In China’s case, most of the other components of true global power — moral sway, military clout, cultural influence, to name a few — are in the assembly stage, or missing altogether.

Even China’s unquestioned economic clout comes with an asterisk. While Chinese megacities boom and the country’s coast has become the world’s factory, 800 million of the nation’s 1.3 billion citizens remain farmers, many mired in poverty. China remains a developing nation, still vying for first-world status.

“I would be careful calling China a superpower. It is not one,” David Shambaugh, who directs the China Policy Program at George Washington University in Washington, wrote in an e-mail message. “It has no global military reach, its soft power is limited, and its diplomatic reach, while now global, is still limited in areas such as the Middle East and Latin America.”

(NYT)

Argentina, China reach currency swap agreement

MEDELLIN, Colombia, March 31- Argentina's central bank considers its recent currency swap agreement with China as a contingency measure and the South American country does not need it for now, Argentine central bank president, Martin Redrado, said on Tuesday.

"This is a standby swap. At this moment Argentina does not need it," Redrado said during an investment conference on the sidelines of the Inter-American Development Bank annual meeting.

"It could be used to do operations for monetary and currency operations," he said.

The two governments signed a memorandum of understanding, creating a framework for the 70 billion yuan ($10.2 billion) swap on Sunday. The news was distributed by the official Xinhua news agency on Monday.

Zhou Xiaochuan, Governor of the People's Bank of China said on Monday that but both sides needed to work out final details.

The swap is the sixth that the PBOC has signed with central banks since December in a drive to free up trade-finance channels that have been clogged by the global credit crunch.

"The fact that China represents such a small share of Argentina's total trade (less than 12 percent) suggests limited impact on FX, but is an important political gimmick at this time (convertibility will remain an issue)," RBS wrote in a research note issued on Tuesday.

"Indeed, we have been talking out the view that it is in the government's best interest to maintain a stable exchange rate into the elections as a strong currency has been the pinnacle of the Kirchner's economic plan and is essential for moderating capital flight," RBS said.

This is China's first currency swap line into Latin America. China's bilateral trade with the region has grown from $15 billion in 2001 to roughly $140 billion in 2008, Zhou told delegates to the IADB meeting.

The PBOC has signed six bilateral currency swaps in recent weeks, totaling 650 billion yuan ($95 billion). The other five central banks that have signed agreements with the PBOC since mid-December are South Korea, Malaysia, Indonesia, Hong Kong, and Belarus.

(Reuters)

EU says G20 not to focus on China financial calls

BEIJING - Europe is comfortable with China's growing world role but believes the G20 summit will be too early to decide on Beijing's calls for more say in global financial bodies, the EU Commissioner for External Relations said on Sunday.

European Union Commissioner Benita Ferrero-Waldner told Reuters in Beijing that the London gathering of 20 major wealthy and developing powers this week would focus on "concrete results" to revive the global economy, not more distant issues.

China caused a stir ahead of the Thursday summit when it suggested the world move to greater use of IMF Special Drawing Rights as an international reserve currency.

"I don't think that this will be the question that really will be discussed thoroughly in London," Ferrero-Waldner said after talks with Chinese Foreign Minister Yang Jiechi and Vice Premier Li Keqiang.

Likewise, she said, China's call for a bigger role in the International Monetary Fund (IMF) and other international financial bodies would not be a focus of the summit.

"I think it's too early for us to give a really concrete answer," she said of these calls. "I think it is within the IMF, it is within the international financial institutions, that these questions have to be discussed."

The idea of a new reserve currency system based on the IMF special drawing rights has not been entirely knocked down, but many G20 leaders have made clear that for now the U.S. dollar's status as the dominant reserve unit remains.

Ferrero-Waldner is seeking to smooth differences between Brussels and Beijing before the G20 meeting and a planned summit between China and the EU in May.

She said China's growing economic clout naturally meant more of an international role for Beijing.

"With the prosperity of China's economy, we of course have seen more self-assertiveness in policy and diplomacy," she said, adding that Beijing had taken a "very constructive attitude" in many international issues, such as climate change negotiations.

Chinese officials were angered by French President Nicolas Sarkozy's decision to meet the Dalai Lama, Tibet's exiled Buddhist spiritual leader, in December, when France held the six-monthly rotating EU presidency.

China condemns the Dalai Lama as a separatist for demanding high-level autonomy for his homeland.

Beijing is still giving Sarkozy the cold shoulder, but relations with the EU have improved, with Premier Wen Jiabao visiting Brussels and other capitals in February.

Ferrero-Waldner said she hoped Beijing and Brussels would seal a new framework treaty governing their ties by the end of the year.

(Reuters)

China questions Dollar's dominance

The dollar's role as the world's dominant currency is coming under intense scrutiny.

This week, China added its voice to demands for a new global currency as an alternative to the dollar in international trade and finance.

It is worried that the dollar's value is being eroded by the steps the US is taking to rescue its economy from the worst financial crisis since the 1930s.

The US currency recorded its biggest weekly slide since 1985 last week, after the Federal Reserve said it would begin buying government debt to try to boost the economy, underscoring concerns.

"Calls for a new global currency come at a time when the US dollar is probably at its most vulnerable in many years," says Mitul Kotecha, global head of foreign exchange strategy at French financial services firm Calyon.

Dangers

China's central bank governor Zhou Xiaochuan called for a new reserve currency run by the International Monetary Fund.

He said the recent crisis revealed the dangers of relying on one currency.

He echoed similar calls made by Russia, which said it would bring up the topic at next week's G20 meeting.

The US response to China's unusually frank comments confused many investors.

US Treasury Secretary Timothy Geithner said he was "quite open" to China's idea, triggering a plunge in the dollar.

But he then added that the dollar was likely to remain the world's reserve currency for a long time, helping the currency to recover.

"The machinations of currency policy between the US and China are becoming increasingly intriguing," says Neil Mellor, currency strategist at Bank of New York Mellon.

China has almost $2 trillion in foreign exchange reserves, of which 65% is believed to be in dollars.

Popularity wanes

It is not unheard of for currencies to fall from grace in the global currency league.

Sterling was the dominant reserve currency of much of the world in the 18th and 19th Centuries.

The cost of fighting World Wars I and II, as well as the primacy of the US in the world economy, resulted in the pound losing its status.

And there have been anecdotal signs that the dollar's popularity as the world's currency of choice is fading.

In 2007, Indian tourist authorities said they would no longer accept dollars for entrance to the Taj Mahal.

And at home, rapper Jay-Z waved a wad of euros in a music video.

Stable reserves

To be clear, China is not calling for the US to replace the dollar as its own currency.

It is worried that the value of its reserves, which are predominantly held in dollars, is subject to the volatility of the dollar on foreign exchanges.

It has suggested that the International Monetary Fund's Special Drawing Rights (SDR) could be used as a reserve currency.

The SDR, which as created in 1969 as a unit of account, was initially pegged to the dollar, but is now based on dollars, euros, sterling and yen.

China's proposal would broaden the basket of currencies forming the SDR to include all large economies. Its use would be expanded and the IMF itself would manage some of the reserves.

The goal is to make currency reserves more stable.

Unrealistic

It is not a new idea. Economist John Maynard Keynes made a similar proposal.

But many analysts say such a move is unrealistic, even in the long term.

The dollar's appeal as a reserve currency is the depth and liquidity of US financial markets, says Mark Williams, international economist at Capital Economics.

This is something which the little-used SDR cannot compete with.

Even the world's next most traded currency, the euro, has not emerged as a true competitor to the dollar.

According to the IMF, the dollar accounts for 65% of declared currency reserves. This is down from 73% in 2001, but the decline also reflects the euro's higher value.

"If the euro falls short, it is hard to see markets for assets denominated in a new currency ever becoming developed enough for it to have a chance of dislodging the dollar, " Mr Williams says.

Furthermore, if China were to ditch the dollar, it would have to tread carefully.

Any suggestion that it is diversifying away from the dollar would dramatically undermine the value of its own reserves.

'Massive impact'

But as the world's largest holder of dollars, China's comments cannot easily be dismissed.

Should reserve managers begin to shift away from the dollar, it would have a "massive impact" on US markets, says Mr Kotecha at Calyon.

The huge appetite for dollars from countries such as China helped keep US mortgage rates low - in part causing the crisis the US economy currently faces.

If foreign investors shy away from buying US debt, it could lead to problems financing the Obama administration's stimulus spending plans.

As such, the US is likely to keep China and other large reserve holders on side and pay lip service to China's demands, even if they are unrealistic.

"It's a pointed reminder that China holds some key cards in its game of diplomatic poker with the US," says Mr Mellor at Bank of New York Mellon.

(BBC)