Russia, China seek greater monetary influence

YEKATERINBURG, Russia -- The leaders of four major emerging economies -- Russia, China, Brazil and India -- apparently failed Tuesday to reach consensus on reducing the dominance of the U.S. dollar despite growing calls for an alternative global reserve currency.

The four, seeking a greater role in global financial institutions, held the first summit of the so-called BRIC grouping after two days of meetings of the Shanghai Cooperation Organization, another group that Russia has sought to use to reassert its role on the global stage.

Moscow tried to mount a new challenge to the U.S. dollar as the world's reserve currency and Russian President Dmitry Medvedev pushed his call for more global reserve currencies.

"No currency system can be successful if we have financial instruments denominated in just one currency," Medvedev said. "We must strengthen the international financial system not only by making the dollar strong, but also by creating other reserve currencies."

He said that new ones will take long time to emerge, but that "The main reserve currency, the dollar, has failed to serve its purpose."

Later, Medvedev and the other BRIC leaders issued a statement that called for a more diversified international monetary system and a greater role for their four nations in making major global financial decisions.

A reformed financial and economic architecture should be based on a "democratic and transparent decision-making and implementation process at the international financial organizations," the statement said.

The statement made no explicit criticism of the dollar and contained no reference to developing new reserve currencies.

The cautious wording appeared to reflect China's concerns that any anti-dollar statements could erode the value of its currency reserves.

Analysts said the BRIC proposals were premature and could exacerbate the global crisis.

The BRIC statement does not pose any real threat to the dollar, said Brian Dolan, chief currency strategist at Forex, since it "did not propose any concrete steps toward diversifying away from the dollar,"

Michael Woolfolk, senior currency strategist at the Bank of New York Mellon, said the world will naturally become less dependent on the greenback as the global economy becomes less dependent on the U.S. economy. But, he said, the dollar is just too dominant for the time being.

"The BRICs cannot expect to have their cake and eat it too," he said in a research note.

While BRIC members share a desire to play a bigger role in creating a new financial order and counterbalancing the West and Japan, their often contradictory interests would make forging a common policy a difficult task.

China and India have sizable labor resources, while Russia and Brazil are rich in natural resources. China is a major consumer of natural resources, unlike Russia and Brazil, which are top producers. While China wants lower oil prices, Russia and Brazil would seek higher oil prices.

China and Russia are increasingly in competition for clout and access in strategic regions -- most significantly, ex-Soviet Central Asia, the strategically located region that has vast oil and gas reserves and faces a growing threat from Islamic radicals.

Moscow and Beijing dominate the Shanghai grouping, which was set up ostensibly to counterbalance U.S. presence in Central Asia, but also to keep an eye on one another.

China announced Tuesday it was offering $10 billion in loans to the largely poor region, adding muscle to Beijing's role in the grouping, which includes Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan.

Medvedev's economic adviser Arkady Dvorkovich said Russia may diversify its currency reserves investments by buying bonds issued by Brazil, China and India. He told a briefing that Russia could make the move if the other three BRIC members reciprocate.

Dvorkovich also proposed revising the way the International Monetary Fund's obligations are valued. He said the ruble, the yuan and gold should be part of a revised basket of currencies to form the valuation of the IMF's special drawing rights -- international reserve assets that supplement countries' existing official reserves.

Dvorkovich also denied any rift on the issue with Russian Finance Minister Alexei Kudrin, who helped the dollar rebound in value this week by saying over the weekend that the dollar's status as the world's main reserve currency wasn't likely to change soon.

"No one wants to bring the dollar down," he said.

Other observers said Medvedev's speech in Yekaterinburg on Tuesday was more of a political declaration than a call for action.

"Medvedev is trying to give an impetus to a discussion which may take quite a long time -- and give no result," said Vladimir Tikhomirov, chief economist at Moscow-based UralSib bank.

The talk about global reserve currencies has been prompted by concerns in China and Russia that soaring U.S. budget deficits could spur inflation and weaken the dollar, debasing the value of their holdings.

Officials from Russia, China and Brazil have said in recent weeks that they would invest in bonds issued by the International Monetary Fund to diversify their dollar-heavy currency reserves.