Russia plans to hold an international conference to discuss the creation of a global currency to replace the dollar.
According to the RIA news agency, Andrei Denisov, Russia’s first deputy foreign minister, said: "This proposal is aimed at a practical realisation of the idea about a new global accounting unit or a new global currency. It is a question that should be discussed to create a consensus."
Denisov’s comments came only hours after the US treasury secretary, Timothy Geithner, shocked the markets by saying Washington was open to the idea, though he later qualified his remarks.
The debate about a global reserve currency run by the International Monetary Fund was sparked by a proposal from China this week.
The dollar tumbled last night when Geithner said he was "quite open" to a Chinese suggestion that the world should move towards greater use of an IMF-created global currency basket of dollars, euros, sterling and yen.
Next week world leaders gather in London for the G20 summit to discuss the global economic crisis.
Geithner qualified his remarks by reaffirming the dollar’s role in the world financial system, helping the currency to recover some ground.
"The dollar remains the world’s dominant reserve currency," he said. "I think that’s likely to continue for a long period of time."
The governor of China’s central bank, Zhou Xiaochuan, called for a new "super-sovereign reserve currency" run by the IMF to reduce reliance on the dollar. He urged the IMF to expand the use of its special drawing rights basket.
The dollar initially recovered from yesterday’s wobble but then retreated against most major currencies this afternoon as markets nervously awaited Geithner’s appearance before a congressional committee.
"The dollar’s reaction to his comments demonstrates that even statements by a US treasury secretary who clearly has not yet worked out that he has to choose his words carefully cannot question the role of the dollar as reserve currency – if for no other reason than a lack of alternatives," said currency strategists at Commerzbank.
China’s bold proposal has been made before by independent economists, but it has until now met with resistance from the US and other countries with large dollar holdings. Zhou has acknowledged that such a shift could take a long time.
The dollar drops back as China’s proposal for an IMF alternative gains ground
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