China economist blasts dollar dominance on eve of G20

Dollar dominance is sowing the seeds of financial turmoil, and the solution is to promote new reserve currencies, a Chinese government economist said in a paper published on the eve of a G20 meeting about how to reform the global monetary system.

Although not an official policy statement, the paper by Xu Hongcai, a department deputy director at the China Center for International Economic Exchanges, offered a window onto the domestic pressures bearing on Beijing to move away from a dollar-centric global economy.

The China Center, a top government think tank, has represented the Chinese government in organising a forum on Thursday in Nanjing that will bring together finance ministers, central bankers and academics from the Group of 20 wealthy and developing economies.

Xu's paper, "Reform of the international monetary system under the G20 framework", was published in Chinese on the center's website this week (www.cciee.org.cn).

"Nations around the world have no way of restricting dollar issuance by the Federal Reserve. The current international monetary system lacks both stability and fairness," Xu wrote.

He said the global monetary system had fallen into a "dollar trap". While it would be sensible to reduce dollar holdings in official currency reserves, nations cannot easily cut back, because doing so would only lead the dollar to weaken and so hit the value of their assets, he said.