Emerging nations are expected to discuss the replacement of the US Dollar with a new global reserve currency at next week's G8 meeting, representing what may become the most radical fallout of the current economic crisis.
China and Russia have been most vocal about a move away from the greenback, calling for a more ‘diversified' international currency system to facilitate global trade.
As the world's top holder of foreign exchange reserves, China renewed its call last Friday for the creation of a super-sovereign reserve currency to reduce the dollar's global domination, which it said had worsened the financial crisis.
The financial crisis has fully exposed some shortcomings in the international currency system, said Deputy Foreign Minister Yafei . Of course we hope that in the future, the international currency system can diversify.
Minister He, who is in charge of China's G8 meeting preparations, said Beijing thought the reserve currency issue may come, but denied reports that the nation was discussing it officially.
This is an objective that the international community naturally wants to realize, and, as I just said, if in the meetings some leader raises this issue for discussion, that would be normal.
China has taken moves to match its rhetoric, with its central bank Thursday allowing exporters and importers in select cities to settle cross-border trades using the yuan, as part of efforts to reduce reliance on the US dollar for international trade.
Hong Kong companies also want to use the yuan as they expect it to appreiate against the US dollar by more than 3% annually.
China's yuan will one day be a major global currency, quoted on markets around the world. It will be the currency in which much of Asian trade is denominated and a reserve asset of central banks around the world, said Stanley Wong, deputy general manager at Industrial & Commercial Bank of China (Asia) Ltd.
But Japan thinks it would be difficult for another currency to replace the dollar as the world's reserve currency and it is against any move that would unnecessarily weaken the status of the dollar, said Yoichi Suzuki, director-general of the Japanese foreign ministry's economic affairs bureau.
Japan's stance is that major countries should support the dollar, Suzuki, one of the country's main coordinators for the G8 summit, told Reuters.
China also caused a stir by suggesting in March that the International Monetary Fund's (IMF) Special Drawing Right (SDR) could eventually displace the dollar as the principal reserve currency.
The SDR is an international reserve asset allocated to IMF members. Its exchange rate is determined by a basket of currencies, including the dollar, euro, sterling and yen.
The IMF this week unveiled its long-awaited plan for issuing debt denominated in SDRs. China is to purchase up to $50 billion of the notes, more than any other country, according to minister He.
Russia President Dmitry Medvedev's chief economic aide, Arkady Dvorkovich, called on the IMF to expand the basket of SDRs to include the Chinese yuan during the first BRIC summit in Yekaterinburg.
The existing set of reserve currencies, including the U.S. dollar, has failed to perform their functions, President Medvedev told a news conference ahead of the BRIC summit in June.
We will not do without additional reserve currencies, Medvedev said, adding that a new supranational reserve currency was also an option as the IMF's SDRs gained a bigger role.
The idea that the IMF's SDR could eventually displace the dollar as the principal reserve currency was unrealistic, Japan said.
The United States has made no official comment.