China urges countries to settle dues in yuan, not dollar

31 Mar 2009, 0600 hrs IST, Saibal Dasgupta, TNN

BEIJING: China is assuring the US it will do nothing to weaken the position of thedollar as the main international currency. But it is also using the financial crisis to urge foreign countries to settle payments in yuan instead of the US dollar.

The latest move involves a $10 billion currency swap deal with Argentina allowing importers in that country to make purchases from China in yuan instead of the dollar.

Argentina on Monday became the fifth country after South Korea, Malaysia, Belarus and Indonesia to sign such a currency swap agreements with China.

Chinese central-bank governor Zhou Xiaochuan recently threw the cat among the pigeons by calling for a new global reserve currency to replace the dollar because the US currency was extremely vulnerable to wide fluctuations during this period of financial crisis.

The statement has caused a furors across capitals of several western nations because China holds one of the biggest stock of foreign reserves.

Zhou’s views have been backed by Russian officials causing a lot of worries in Washington. In London, the Chinese ambassador in UK, Fu Ying, was singing a different tune ahead of the coming G-20 Summit in that city. He told the BBC on Sunday that China was not calling for replacement of the dollar as the world’s main currency. Zhou was merely contributing to an old debate when he made the statement about the US dollar, he said.

“It has been a long debate in the world. There’s nothing new,” she said. “And China is not calling for a replacement of dollar. It is an article written by the governor of centralbank on his bank’s website. I think he’s joining the debate.” Fu said.