Dollar drops as Geithner sees greater role for IMF currency (Roundup)

Mar 25, 2009, 17:40 GMT

Washington - US Treasury Secretary Timothy Geithner sent the US currency tumbling Wednesday by saying he was open to enlarging the International Monetary Fund's currency reserves, but rallied again as he clarified the dollar will remain 'the world's dominant reserve currency.'

His comments at the Council on Foreign Relations in New York were in response to China's suggestion that a new global currency reserve should replace the dollar in order to guard against fluctuations in economic crises.

China's central bank head, Zhou Xiaochuan, on Tuesday proposed a 'gradual increase' in the IMF's special drawing rights - a currency unit weighted against a basket of global currencies - and eventually replacing the dollar with a super-sovereign reserve currency.'

After rejecting the idea on Tuesday, Geithner told the council the United States was 'actually quite open' to increasing the IMF's special drawing rights. He said the expansion would be 'rather evolutionary ... rather than moving us to global monetary union.'

The dollar dropped as much as 1.3 per cent against the euro in response, but climbed after Geithner again addressed the issue at the same conference about 30 minutes later.

'I think the dollar remains the world's dominant reserve currency. I think that's likely to continue for a long period of time,' Geithner said after the conference's moderator asked him to 'clarify' his earlier remarks.

The dollar was trading at 73.70 euro cents by Wednesday afternoon, down from 74.25 euro cents on Tuesday.

China's premier Wen Jiabao earlier this month said he was worried about the country's nearly 1-trillion-dollar holdings of US government debt. The US deficit is expected to top 13 per cent of economic output this year as the country tackles a deepening recession.

The debate comes as world leaders are set to gather in London on Tuesday for the Group of 20 nations summit to address the global recession.

President Barack Obama on Tuesday flatly rejected China's call for a global reserve currency, an idea that has also been suggested by Russia, adding that the dollar 'is extraordinarily strong right now.'

'I don't believe that there's a need for a global currency,' Obama said at a White House press conference Tuesday night.