China, India urge stability of reserve currencies.

BEIJING: China and India on Thursday urged stability in major reserve currencies and in nations’ macro-economic policies to help cement the global recovery.

“It is of great significance to maintain the stability and continuity of macro-economic policies,” Chinese and Indian finance officials said in a joint statement after a meeting in Beijing on Thursday. “Maintaining relative stability of major reserve currencies and fiscal sustainability are also very important.”

Brazil, Russia, China and India have stepped up co-operation to ensure that the interests of developing nations are taken into account at the Group of 20, which holds a meeting in Seoul in November. In the past year, the euro has dropped 10% to $1.2829, while the yen has climbed 9.5% versus the dollar to 84.24 per dollar.

“Increased volatility in the major currencies has clearly not been a welcome development as the world continues to grapple with economic risks,” said Priyanka Chakravarty, a Mumbai-based strategist at Standard Chartered. “The statement highlights the importance of stable currencies in facilitating the path to recovery.”

Zhang Ping, the head of China’s top economic planning agency, the National Development and Reform Commission, said last month that volatilities in major currencies and commodity prices remain risks to the global recovery. Government economists including Ba Shusong from the State Council’s Development and Research Center have warned US dollar volatility may affect the value of China’s $2.45 trillion foreign-exchange reserves.

China’s Concerns

China’s central bank Governor Zhou Xiaochuan last year advocated a greater use of International Monetary Fund Special Drawing Rights in reserves. The rights are a unit of account, based on a basket of currencies. Russian President Dmitry Medvedev in June called for a greater number of reserve currencies in the global financial system. French President Nicolas Sarkozy said in Paris on August 25 that G-20 leaders should debate the “dominance” of one currency, the US dollar.

Chinese Premier Wen Jiabao said China and western countries should work together to enhance the world’s confidence in the euro and the European Union’s economy, the People’s Daily reported on September 1.

Gold Stockpiles

As BRIC nations debate the need for stable reserve assets, China, India and Russia, three of the five biggest foreign-exchange reserve holders, raised gold stockpiles to record levels this year, central bank data from the countries show.

China’s gold stocks were at 33.89 million ounces at the end of June and the value India’s holdings peaked at $19.9 billion in July, according to Bloomberg data. China and India on Wednesday also agreed the need for “some Asian economies” to gradually remove monetary policies designed to address the global financial crisis, citing signs of overheating and inflationary pressure, according to the statement.

Policy makers should be wary of “possible capital-flow disorders” resulting from those adjustments, the statement said. China and India previously had three rounds of the so-called “financial dialogue” under the same framework in 2006, 2007 and 2009.

Source : economictimes.indiatimes.com