BRIC calls for diverse reserve currency

YEKATERINBURG, Russia | The leaders of four major emerging economies - Brazil, Russia, India and China - apparently failed Tuesday to reach consensus on reducing the dominance of the U.S. dollar despite growing calls for an alternative global reserve currency.

The four are seeking a greater role in global financial institutions. They held the first summit of their so-called BRIC grouping after two days of meetings of the Shanghai Cooperation Organization, another group that Russia has sought to use to reassert its role on the global stage.

Moscow tried to mount a new challenge to the U.S. dollar as the world’s reserve currency, and Russian President Dmitry Medvedev pushed his call for more global reserve currencies.

“No currency system can be successful if we have financial instruments denominated in just one currency,” Mr. Medvedev said. “We must strengthen the international financial system not only by making the dollar strong, but also by creating other reserve currencies.”

He said new ones will take a long time to emerge, but that “the main reserve currency, the dollar, has failed to serve its purpose.”

Later, Mr. Medvedev and the other BRIC leaders issued a statement that called for a more diversified international monetary system and a greater role for their four nations in making major global financial decisions.

A reformed financial and economic architecture should be based on a “democratic and transparent decision-making and implementation process at the international financial organizations,” the statement said.

Notably, however, the statement made no explicit criticism of the dollar and contained no reference to developing new reserve currencies.

The cautious wording appeared to reflect China’s concerns that any anti-dollar statements could erode the value of its currency reserves.

Analysts said the BRIC proposals were premature and could exacerbate the global crisis.

Michael Woolfolk, senior currency strategist at the Bank of New York Mellon, said the world naturally would become less dependent on the greenback as the global economy becomes less dependent on the U.S. economy.

But, he pointed out, the dollar is just too dominant for the time being.

China and India have sizable labor resources, while Russia and Brazil are rich in natural resources. China is a major consumer of natural resources, unlike Russia and Brazil, which are top producers. While China wants lower oil prices, Russia and Brazil seek higher oil prices.

China and Russia are increasingly in competition for clout and access in strategic regions - most significantly, former Soviet Central Asia, the strategically located region that has vast oil and gas reserves and faces a growing threat from Islamic radicals.

Moscow and Beijing dominate the Shanghai grouping, which was set up ostensibly to counterbalance U.S. presence in Central Asia, but also to keep an eye on one another.

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