The world has more than enough reserves to help restore financial stability, British Prime Minister Gordon Brown said on Wednesday, but a way needs to be found of unlocking the funds.

Speaking on the second leg of a three-continent tour to drum up support for the G20 summit in London next week, Brown said countries with high reserves, such as China, needed an insurance policy to protect them while encouraging them to lend.

We've got 7 trillion (dollars) of reserves around the world. Probably for the sake of financial stability you need maybe only half of these reserves. The rest can actually be far more effective in being used to get growth into your economies, Brown told an audience at the Wall Street Journal in New York.

If we could find an insurance policy which guaranteed for these countries action in the event of their currency being in difficulty, that in my view would satisfy half the problem that is being raised by China and Russia.

Brown did not offer more details on any such program, but said it could be managed by the International Monetary Fund.

China said earlier this month the world should consider developing the IMF's special drawing rights (SDR) as a super-sovereign reserve currency. Responding to this, U.S. Treasury Secretary Timothy Geithner said on Wednesday he was quite open to the idea of increasing the use of SDRs.

Brown's visit to the United States is the second leg of a five-day blitz ahead of the G20 summit on April 2 which has already taken in Europe and will move on to Latin America.

Brown said there was a need to create a new precautionary facility that crisis-hit countries could go to that did not carry the stigma of asking for help from the IMF.

Such a facility could be within the IMF, or it could be funded by countries interested in doing so, or it could be funded by sovereign wealth funds or with SDRs, he said.

There are a number of ways we are looking at about how this can be done, he said.

TRADE BOOST

Speaking later at New York University, Brown warned of the danger of a retreat into protectionism, and promised action at the G20 to help tackle a shortage of trade credit that is restricting world trade.

We want to give people the opportunity to resume trade where there are no trade credits and facilities available ... So I think we'll agree on a very substantial package of helping countries to trade, he said.

Keen to show that consensus is being reached ahead of the summit, which Brown hopes will produce a framework for global cooperation in responding to the crisis, the prime minister also played down suggestions of rifts with his own central bank governor and with other leading economies.

Like the United States, Brown favors more measures to revive a world economy struggling with the worst downturn in 80 years. But some European countries oppose further stimulus and Mervyn King, the governor of the Bank of England, warned Brown on Tuesday that Britain's soaring budget deficit meant it had to be cautious about any new fiscal stimulus plans.

Brown dismissed talk of a rift with King and voiced confidence that the summit in London would reach agreement.

What the issue is actually now is whether we are prepared, given what happens over the next few months, to do what is necessary to resume growth in the economy, Brown said.

I think if you put that question to Mervyn King he will say ... that we've got to be ready to take the action that is necessary to restore growth.

In Britain we are doing it in three ways. We are doing it by interest rates being incredibly low, we're doing it by our fiscal stimulus and we are doing it by -- what is probably not yet understood by the public is one of the most effective and quicker ways of getting activity moving in the economy -- by quantitative easing, he said.

So if you take these three changes to the pattern over the last few months together that is where you will look for results in the combination of these three.

Around $2.5 trillion of fiscal stimulus has been enacted around the world, Brown said, but coordination is needed and issues like quantitative easing and the impact of deep interest rate cuts also have to be taken into consideration.

Brown said that, in the short-term, deflation was a greater economic threat than inflation, but said central banks were prepared to act to spur economic activity.

Noting that the European Central Bank bank had cut interest rates to 1.5 percent, he said: My own expectation is they will bring them down further. I think every central bank is looking at non-standard ways of increasing activity in the economy.

(Additional reporting by Andrew Quinn, Tabassum Zakaria, Claudia Parsons; Editing by Ron Askew)

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