LONDON — Questions about the dollar's role as the world's primary reserve currency won't go away as leaders of the Group of Eight nations prepare to begin a three-day meeting in Italy today.
The issue isn't on the agenda for G8 leaders, but officials from Russia and elsewhere have said it will be discussed when the G8 heads are joined Thursday by leaders of emerging economies, including China, India and Brazil.
The G8 consists of the United States, Japan, Germany, France, Italy, Great Britain, Canada and Russia.
The meeting marks U.S. President Barack Obama's first G8 summit.
China, the largest holder of dollar-denominated reserves, and Russia have repeatedly voiced concerns since the start of the year over the world economy's reliance on the dollar. China and others have argued in favor of creating an alternative based on the International Monetary Fund's special drawing rights.
The G8 won't discuss the reserve currency issue, but "China and Russia will state their stance that the global currency system needs smooth evolutionary development, and this is connected with the creation of several regional reserve currencies, which may then become international," Kremlin aide Arkady Dvorkovich said ahead of the meetings, according to Reuters.
But some currency watchers say recent remarks by Chinese officials and others indicate that concerns about a fall in the dollar, which would be self-defeating for countries holding large dollar reserves, could serve to squelch questions about the dollar's reserve status in the near term.
"There seems to be a recognition among a growing number of administrations that it would be better to avoid a fresh slide in the U.S. dollar from here," wrote Simon Derrick, chief currency strategist at Bank of New York Mellon, in a research note.
On Monday, German Finance Minister Peer Steinbrueck expressed doubts that the dollar's reserve role would come under threat even though rival currencies will likely grow in influence.
"I don't think it's very probable that the U.S. dollar will lose its role as the leading reserve currency worldwide," Steinbrueck said at a meeting of European finance ministers in Brussels, the Wall Street Journal reported.
Kenneth Broux, market economist at Lloyds TSB, said the dollar will likely be discussed on the sidelines of the summit, but remains skeptical that any major changes in the dollar's reserve status will be coming soon.
He noted recent IMF data showed the dollar's share of the world's roughly $4 trillion of foreign exchange reserves actually grew to 64.9 percent in the first quarter of the year, up from 64 percent in the final three months of 2008. That indicates complaints about the dollar's role represent "more talk than action," he said.
A draft of the joint text to be issued by leaders at the conclusion of the summit on Friday saw leaders agree to battle protectionism and to increase investment in agriculture spending in the developing world, according to Reuters. The draft calls for a conclusion of the long-stalled Doha round of world trade talks, but didn't set a date for finishing the negotiations, the report said.
G8 leaders are also expected to agree to a plan setting a goal to limit global warming, news reports said.
The financial crisis will be a main topic on the first day of the summit today.
Economists said the leaders probably won't be ready to commit to any exit strategies from economic stimulus packages at this stage, given the fragile nature of the recovery.
"I think that policymakers will have to consider fresh stimulus measures, and I think it will be apparent before too long that consumers (in the United States and Britain) do not have the firepower to put their economies back on track," wrote Neil MacKinnon, chief economist at ECU Group, a London consulting firm, in a research note.