Saturday, June 6, 2009

UPDATE 2-Russia says yuan could be reserve currency in decade

Russia's Finance Minister Alexei Kudrin speaks during the International Economic Forum in St.Petersburg June 5, 2009. Russia's President Dmitry Medvedev, opening the country's top business forum, said the global economy had avoided worst case scenarios but warned participants that it was too early to celebrate recovery. REUTERS/Alexander Demianchuk (RUSSIA POLITICS HEADSHOT)

Sat Jun 6, 2009 6:18am EDT
* Russia's Kudrin says yuan may be reserve currency
* Says China should think of full convertibility
* Says does not see major currency unions
* Warns on outlook for emerging markets
(Adds details, quotes and background)
By Toni Vorobyova and Guy Faulconbridge
ST PETERSBURG, Russia, June 6 (Reuters)
- China's yuan could become a world reserve currency after it becomes fully convertible, a process that might take about 10 years, Russian Finance Minister Alexei Kudrin said on Saturday.
China has slowly started to use its economic might to carve out a larger role for the yuan , which is still not fully convertible.
"I think the shortest route would be if China liberalised its economy and allowed the convertibility of the yuan," said Kudrin, a close ally of Prime Minister Vladimir Putin.
"This could take 10 years but after that the yuan would be in demand and it is the shortest route to the creation of a new world reserve currency and I think China needs to think about this," Kudrin said at a panel discussion at the St Petersburg International Economic Forum.
China and Russia, the world's No. 1 and No. 3 biggest holders of foreign exchange reserves, have expressed unease about the volatility of the U.S. dollar and called for discussions on ways to create rival reserve currencies.
But response from developed countries has been cool.
The European Union's economic chief Joaquin Almunia, who took part in the same panel session as Kudrin, played down the prospects of the dollar being supplanted from its leading position in the world economy any time soon.
"The dollar is obviously the main currency in our global economy as a reserve currency and this position of the dollar will not be changed in the short-term by any kind of political decision or political will," he told reporters.
"These are decisions adopted by the market and I think the markets in these kinds of issues evolve gradually."
Moscow and Beijing have pushed the idea of using Special Drawing Rights, the International Monetary Fund's unit of account, as a way to reduce reliance on the greenback.
The Kremlin has said the leaders of Brazil, Russia, India and China, known by the BRIC acronym, may discuss the idea of a supranational currency when they meet in the Russian city of Yekaterinburg on June 16. [ID:nL21010092]
A Brazilian official told Reuters last month that the summit would discuss the dominance of the U.S. dollar as well as ways to reshape the world trade system and nuclear disarmament. [ID:nLS413993]
It will be the first BRIC summit since the international crisis struck their economies, which had driven global growth.
Kudrin said major emerging markets, many of which have gained from the massive injection of liquidity by the Federal Reserve and other central banks, could suffer when the same banks have to move to deal with a backlash of inflation.
"If the liquidity can perhaps support the demand which is being supplied by the Federal Reserve and other central banks, then as soon as there are signs of inflation then this liquidity will leave world financial system and our emerging markets will again lose capital," Kudrin said.
Kudrin, 48, has served as finance minister since 2000 and is credited with ensuring Russia builds enough reserves during the boom years of Putin's presidency to brave the economic crisis, which has hammered Russia's $1.7 trillion economy.
(Editing by Keiron Henderson)
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