China has called for the creation of new global currency by the International Monetary Fund, possibly the revival of the Special Drawing Rights (SDR), to replace the US dollar as the new global currency. (Also see: China, others back Russia's alternative to dollar)
China's position on the global financial scenario, made clear in an article by Zhou Xiaochuan, governor of China's central bank, was intended to sway opinion among developing countries and to step up pressure on western governments, ahead of the 2 April summit of G-20 nations in London.
Zhou's essay, published both in Chinese and English, did not name the dollar as the root cause of the crisis but said the crisis showed the dangers of relying on one nation's currency for international payments.
The reliance on one currency as a peg for global currencies has only led to increasingly frequent crises in the global financial system, especially since the collapse of the fixed exchange rate system in the early 1970s, he wrote in an article published on the People's Bank of China website.
Zhou said it was time the Special Drawing Right (SDR), created as a unit of account by the IMF way back in 1969, replaced the dollar as the world's main reserve currency.
The currency peg for each country should be based on shares in the IMF held by its 185 member nations, or special drawing rights, he wrote in the article.
Zhou said the new currency should also be used for trade, investment, pricing commodities and corporate bookkeeping.
The new currency would let governments manage their economies more efficiently because its value would not be influenced by any one nation's need to regulate its own finance and trade, Zhou wrote.
"A super-sovereign reserve currency managed by a global institution could be used to both create and control global liquidity," Zhou wrote.
"This will significantly reduce the risks of a future crisis and enhance crisis management capability," Zhou wrote even as he called for changing the was SDRs are valued.
He suggested an expanded basket of currencies for valuation of the SDR against the current valuation based on the value of four currencies - the dollar, euro, yen and the British pound. "The basket of currencies forming the basis for SDR valuation should be expanded to include currencies of all major economies," Zhou wrote.
"The crisis called again for creative reform of the existing international monetary system towards an international reserve currency," he wrote.
A reserve currency is the unit in which a government holds its reserves and uses to pay foreign debt obligations or influence exchange rates. The dollar is viewed as the world's reserve currency as the vast majority of reserves are held in the US currency. Smaller amounts are held in euros, pounds and yen.
"The role of the SDR has not been put into full play, due to limitations on its allocation and the scope of its uses," he wrote, adding, "However, it serves as the light in the tunnel for the reform of the international monetary system."
China is expected to be more assertive in global economic affairs and press for a bigger say for developing countries in financial matters when leaders of the Group of 20 major economies meet on 2 April in London.
Beijing is also worried that a fall in dollar value would erode the value of its over $1 trillion dollar holdings in treasuries and other US government debt.
In fact, Chinese premier Wen Jiabao has publicly appealed to Washington to avoid any steps in response to the crisis that might erode the value of the dollar and Beijing's estimated $2 trillion holdings.
Zhou also reiterated China's opposition to trade protectionism and called for all-round and balanced progress of the Doha talks. He also called for more trade support to developing countries.
The US dollar turned volatile on Tuesday following the announcement of the toxic assets programme whereby the US government offered to buy all toxic assets of major US banks.
G20 finance chiefs at their last meeting called for major changes in the global financial structure but did not elaborate. Other major emerging economies such as Russia, India, South Africa and Brazil are also expected to press the case of IMF reforms at the G-20 summit in London.