OTTAWA (Reuters) - The U.S. dollar as the global reserve currency of choice has been a stabilizing force during the current financial crisis, Canada said on Friday, downplaying calls to debate the greenback’s dominant status.
Canadian Finance Minister Jim Flaherty added his weight, at least for now, to Japan’s opposition to a Chinese push for a new super-sovereign reserve currency that would displace the U.S. dollar.
Flaherty also told reporters he could see the Canadian currency appreciating as part of a worldwide shifting of foreign exchange rates to correct imbalances.
He said he did not know whether the U.S. dollar’s role as the global reserve currency would be included in the final communique of a meeting between the Group of Eight leaders and a heads of emerging nations in Italy next week.
“It’s an issue that we have not addressed other than to say that, in the midst of what is still a significant global recession, it’s important that we aim for stability, and stability has been based on the U.S. dollar as the global currency,” Flaherty said via teleconference from Chile.
China has asked for a debate on a new global reserve currency by the G8 and five emerging economies, G8 sources have told Reuters. News of the Chinese request helped push the U.S. dollar down to a three-week low on Wednesday.
Flaherty said he expected there to be a more general discussion on foreign exchange at next week’s summit, which starts with the G8 nations alone and then broadens to include emerging nations.
Commenting on Canada’s currency, he said there was room for the Canadian dollar to appreciate further as part of the global realignment of currencies that many believe should include a rise in the Chinese yuan and a weaker U.S. dollar.
“Yes, of course it can,” he said when asked if there was scope for a strengthening of the Canadian dollar.
“A lot of people view the Canadian dollar in line with energy prices, with oil prices for example, so some appreciation there is likely to have some upward effect on the Canadian dollar vis a vis the U.S. dollar,” he said.
“Our main concern is not to see nonmarket-related fluctuations in the currency.”
Flaherty also gave his backing to the Lecce Framework of rules for global finance, which the G8 finance ministers have adopted and next week’s summit will now review.
Some observers have criticized it as being too vague and voluntary, but he said: “I think it is a statement of principle that is useful.”
However, he repeated Canada’s position that sound regulation must begin at home and that it, coupled with transparency, would build international confidence.
“It’s always been recognized that each country needs to get its own financial system in order. It’s also been accepted, including by the United States, that there needs to be transparency so that the financial system participants in one country can know that they can rely on financial system participants in another country.”
He predicted jobless rates in Canada and the United States would continue to rise but said he had not seen any signs in Canada of wages contracting.
“The unemployment rate in the United States is well over 9 percent now and it’s likely to go higher into 2010. We expect some continuing growth in unemployment in Canada as well. Recovery from the recession will happen before the reduction in unemployment,” Flaherty said.
Flaherty was speaking from Chile, where is attending a meeting of finance ministers of the Americas, along with officials from the World Bank, Inter-American Development Bank and the International Monetary Fund.
Additional reporting by Randall Palmer and Ka Yan Ng; editing by Peter Galloway