Kudrin says no alternative to dollar

Bloomberg

Kudrin rushed to reassure investors of Russia’s confidence in the dollar just days after his boss, President Dmitry Medvedev, questioned its global status, joining China’s central bank Governor Zhou Xiaochuan in suggesting the world may need another benchmark for settling international debts.

"It’s too early to speak of an alternative," Kudrin said in an interview over the weekend in Lecce, Italy, after meeting officials from the Group of Eight nations.

Kudrin’s comments underscore the dependence of Brazil, China, Russia, and India on the currency of the U.S., the world’s largest economy and a $2.5 trillion export market. Even as some of their leaders questioned the dollar’s status, the four nations increased foreign reserves by more than $60 billion in May to limit their currencies’ gains and support their exports.

They now have combined reserves of $2.8 trillion and are among the largest holders of Treasuries.

"At this point there’s no alternative to the U.S. dollar in terms of deep liquid markets and trading 24-7 globally," Michael Woolfolk, senior currency strategist at the Bank of New York Mellon in New York, said Sunday in a telephone interview. "Nothing even comes close to the dollar in terms of reserve status."

At the end of 2008 the dollar accounted for 64 percent of central bank reserves, up from 62.8 percent in June 2008, according to the International Monetary Fund in Washington. The currency has underpinned exchange rates since the 1971 collapse of the Bretton Woods system, which linked their value to gold.

The Dollar Index, which tracks the greenback against the euro, yen, pound, Swiss franc, Canadian dollar and Swedish krona, has dropped 10.6 percent to 80.142 from its high this year of 89.624 on March 4, when the global financial crisis sent investors to the relative safety of U.S. debt.