Rome: China, Russia and Brazil will use this week’s G8 summit in Italy to push their view that the world needs to start seeking a new global reserve currency as an alternative to the dollar, officials said on Tuesday.
As leaders of the G8 rich nations and the major developing powers travelled to Italy for a three-day summit starting on Wednesday, it seemed unlikely the currency debate would get a specific mention in summit documents.
But both G8 member Russia and emerging power Brazil which like China and India is a member of the “G5” that joins the second day of the summit on Thursday echoed China’s calls for the currency debate to be taken up by world leaders.
Top Kremlin economic aide Arkady Dvorkovich said China and Russia would “state their stance that the global currency system needs smooth evolutionary development”.
President Luiz Inacio “Lula” da Silva said he was keen to explore “the possibility of new trade relations not dependent on the dollar” and India has also said it is open to the debate.
But G8 members Germany, France and Canada played down talk of the summit including a detailed currency discussion. A source at President Nicolas Sarkozy’s office said the G8 was “generally not the forum ... for discussing currency exchange rates”.
German finance minister Peer Steinbrueck said on Monday the dollar was likely to remain the global reserve currency but the Chinese yuan and the euro would slowly gain in significance.
The debate is highly sensitive in financial markets, which are wary of risks to U.S. asset values. China and other nations promoting the debate take care to avoid undermining the dollar, with Lula saying it would be vital “for decades” to come.
China, which has up to 70% of its $1.95 trillion in official currency reserves in the dollar, underlines that the dollar is still the most important reserve currency.
But it believes over-reliance on the dollar has exacerbated the financial crisis and sees the International Monetary Fund’s special drawing rights (SDRs), based on a basket of currencies, as a viable alternative for the future.
G8 urged to act on poverty
With Italy keen to avoid a repeat of the riots and police brutality that marred the 2001 G8 in Genoa, security was tight around the earthquake-stricken mountain town of L’Aquila, where world leaders will sleep in an austere police training school.
But police in L’Aquila arrested five French citizens found with clubs and sticks in their vehicle and small groups of student protesters clashed with police in nearby Rome.
“We want to once again demonstrate against what the G8 represents,” said a student giving her name as Maria Teresa.
Pope Benedict issued a document to coincide with the G8, urging leaders to impose tough rules on the financial system.
In the encylical, he called for “a true world political authority ... to manage the global economy” and avoid more “abuse” of the free market.
With nine African leaders attending the summit, the US could pledge $3-4 billion for agricultural development in poor nations, which it wants matched by its partners for a total commitment of $15 billion, according to a G8 draft declaration.
Progress on climate trade
The G8 talks open with discussion of the economic crisis. Italy’s Silvio Berlusconi is eager to transmit optimism, though his credibility as host is undermined by a prostitution scandal, a poor record on aid and his reputation for diplomatic gaffes.
However, it did look possible that the L’Aquila summit could produce breakthroughs on climate change and trade.
A draft communique suggested the G8 and G5 would agree to conclude the stalled Doha round of trade talks in 2010. Launched in 2001 to help poor countries prosper through trade, Doha has stumbled on proposals to cut tariffs and subsidies.
With an eye on December’s UN climate change summit in Copenhagen seeing a replacement for the 1997 Kyoto pact, leaders will also try to narrow differences over cuts in greenhouse gas emissions and funding for low carbon technology.
They are likely to agree to a goal to limit global warming to no more than 2 degrees Celsius (3.6 Fahrenheit) since pre-industrial times and strengthen last year’s vague “vision” of halving global carbon emissions by 2050.
If also adopted by the 17-member major economies forum talks chaired on Thursday by US President Barack Obama at his first G8 summit, this would be major progress as India and China have so far refused to accept the 2050 target.