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By Bloomberg News

China’s central bank renewed its call for a new global currency and said the International Monetary Fund should manage more of members’ foreign-exchange reserves, triggering a decline in the U.S. dollar.

“To avoid the inherent deficiencies of using sovereign currencies for reserves, there’s a need to create an international reserve currency that’s delinked from sovereign nations,” the People’s Bank of China said in its 2008 review released today. The IMF should expand the functions of its unit of account, Special Drawing Rights, the report said.

The restatement of Governor Zhou Xiaochuan’s proposal in March added to speculation that China will diversify its currency reserves, the world’s largest at more than $1.95 trillion. Chinese investors, the biggest foreign owners of U.S. Treasuries, reduced holdings by $4.4 billion in April to $763.5 billion after Premier Wen Jiabao expressed concern about the value of dollar assets. That reduction came a month after China boosted its holdings by $23.7 billion to a record.

“Zhou Xiaochuan sees the current international financial system is flawed, putting too much emphasis on the dollar as a reserve currency,” said Kevin Lai, an economist with Daiwa Institute of Research in Hong Kong.

President Barack Obama needs the support of China as the U.S. tries to spend its way out of recession. The Dollar Index that measures the currency’s performance against six trading partners fell as much as 0.8 percent to 79.779 at 1:11 p.m. in London. U.S. Treasuries were little changed with the 10-year yield at 3.53 percent.

‘Unlikely’ Shift

“It’s extremely unlikely the dollar will be replaced as the reserve currency,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong. “A currency needs to be internationalized and that requires a fully convertible capital account, which China doesn’t have. The second is that it needs to be adopted.”

At the end of 2008 the dollar accounted for 64 percent of global central bank reserves, down from 73 percent in 2001, according to the IMF in Washington.

On June 13, Russian Finance Minister Alexei Kudrin reassured investors of the country’s confidence in the greenback by saying it was “still early to speak of other reserve currencies.” Brazilian Finance Minister Guido Mantega said on June 10 the government’s decision to switch some reserves into IMF bonds wasn’t aimed at weakening the dollar.

Federal Reserve holdings of Treasuries on behalf of central banks and institutions rose by $68.8 billion, or 3.3 percent, in May, the third most on record, Bloomberg data show.

Diversifying Holdings

China has started to pare its holdings, trimming them by $4.4 billion to $763.5 billion in April, the first monthly reduction since February 2008, according to U.S. Treasury Department data. Figures for May have yet to be released.

“There may be signs here of tensions mounting between the PBOC’s economic concerns over China’s holdings of dollars and the Chinese government’s diplomatic reasons for doing so,” Stephen Gallo, head of market analysis at Schneider Foreign Exchange in London, wrote in an e-mail.

Russian President Dmitry Medvedev, Chinese President Hu Jintao, Indian Prime Minister Manmohan Singh and Brazilian President Luiz Inacio Lula da Silva called for a “more diversified” monetary system to reduce dependency on the greenback at a June 16 meeting in the Russian city of Yekaterinburg. In May, China and Brazil began studying a proposal to move away from the dollar and use yuan and reais to settle trade instead.

Group of 20

Group of 20 leaders on April 2 gave approval for the IMF to raise $250 billion by issuing Special Drawing Rights, or SDRs, the artificial currency that the agency uses to settle accounts among its member nations. It also agreed to put another $500 billion into the IMF’s war chest. This month, Russia and Brazil announced plans to buy $20 billion IMF bonds, while China said it is considering purchasing $50 billion.

“Special drawing rights of the IMF should be given full play, and the international body should manage part of its members’ reserves,” the central bank report said.

IMF First Deputy Managing Director John Lipsky said on June 6 it’s possible to take the “revolutionary” step of making SDRs a reserve currency over time.

SDRs were created by the IMF in 1969 to support the Bretton Woods exchange-rate system that collapsed in 1971. They act as a unit of account rather than a currency. The cash is disbursed in proportion to the money each member nation pays into the fund.

Widening the Basket

The value of SDRs are based on a basket of currencies, shielding them from swings in a single currency. One SDR is valued at $1.54. China is proposing the basket be broadened. The current weighting is: 44 percent for the dollar, 34 percent for the euro and 11 percent each for the yen and the pound. It doesn’t include the yuan.

The dollar’s dominance of global finance buffeted developing nations last year. Investors abandoned emerging markets after the September bankruptcy of Lehman Brothers Holdings Inc. eliminated demand for all but the safest, most easily traded assets, such as Treasuries and the dollar. A shortage of the U.S. currency forced central banks to pump reserves into their economies.

“The excessive reliance on the credit of several sovereign currencies have added to the extent of risks and crises,” the central bank report said. “A currency with stable value in the long term is required.”

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AP

WASHINGTON, DC - President Barack Obama says that while he's dedicated to expanding homosexual rights, many Americans still cling to what he calls "worn arguments and old attitudes."

At a White House celebration of Gay Pride Month, Obama said he hopes to persuade all Americans to accept homosexuality. ""There are good and decent people in this country who don't yet fully embrace their gay brothers and sisters -- not yet," said the president. "That's why I've spoken about these issues -- not just in front of you -- but in front of unlikely audiences, in front of African-American church members."

Obama acknowledged that many Americans still disapprove of homosexuality. "There are still fellow citizens, perhaps neighbors or even family members and loved ones, who still hold fast to worn arguments and old attitudes," he stated.

He added that Congress should repeal what Obama referred to as "the so-called Defense of Marriage Act" -- and that his administration is working to pass a hate crimes bill and to repeal the "don't ask, don't tell" policy on homosexuals in the military.

The audience at the White House ceremony included Episcopal Bishop Gene Robinson and other homosexual clergy. Obama introduced Robinson as a "special friend."

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Israel National News

(IsraelNN.com) In the latest in a recent series of increased American assistance efforts for Arab and Muslim states, U.S. President Barack Obama has allocated an additional $150 million to the Hashemite Kingdom of Jordan. The regimes leading Egypt, the Palestinian Authority, the United Arab Emirates and even Saudi Arabia have all benefited from recent American policy shifts.

Jordan's Minister of Planning and International Cooperation, Suhair Al-Ali, was quoted by The Jordan Times as explaining that the kingdom receives $363 million annually from the United States in economic assistance. The allocations signed into law by Obama this week mean that Jordan will receive a total of $513 million from the U.S. in 2009. The minister told the Jordanian newspaper that the additional American aid was the result of ongoing efforts by Jordan's King Abdullah II, as well as Obama's "recognition of the important role Jordan plays in the region."

Egypt received $310 million in supplemental appropriations from the U.S. House of Representatives, currently controlled by Obama's Democratic party. At the same time, 2009 State Department funding for the promotion of democratic initiatives in Egypt was cut from $50 million to $20 million. In addition, the U.S. has agreed not to give any of the pro-democracy funds to organizations that are not approved by the Mubarak regime. In the year 2007, Egypt received a total of $2.4 billion.

On another front, in March of this year, it was reported that the Obama administration planned to dramatically increase funding to the Palestinian Authority for security training, which is conducted by Jordanian police under the supervision of U.S. General Keith Dayton. The U.S. allocated $75 million for the PA police training in 2008, but reports indicated that the Obama administration was planning to pump up to $130 million into the program in 2009. In any event, the U.S. has already pledged $600 million in funds to the Palestinian Authority, with another $300 million for humanitarian aid to the Hamas regime in Gaza.

Elsewhere in the region, the U.S. is set to help the United Arab Emirates become the first Arab nation with a developed nuclear power infrastructure. President Obama gave his official support and authorization for the $41 billion project, allowing private U.S. companies to compete for construction contracts.

In Pakistan, the U.S. president proposed $2.8 billion in aid for that nation's military, alongside civilian aid of $1.5 billion a year for the next five years. The military aid is ostensibly to allow the Pakistanis to more effectively fight jihadist and al-Qaeda terrorism emanating from the Swat Valley and along the Afghanistan-Pakistan border.

The Obama administration's assistance to Arab and Muslim states extends beyond the monetary, however.

According to an article in Joseph Farah's G2 Bulletin earlier this month, the American government has petitioned the U.S. Supreme Court to preserve sovereign immunity for the Kingdom of Saudi Arabia and four Saudi princes in connection with a civil case seeking compensation for victims of the massive September 11, 2001, al-Qaeda terrorist attacks on the American homeland. The claimants in the case say that there is sufficient evidence of Saudi involvement in 9/11 for the court to lift the normally applicable immunity.

Meanwhile, Saudi Arabia's Foreign Minister, Prince Saud al-Faisal, told Newsweek magazine this month that the United States should cut off all aid to Israel if the Jewish State does not accept the 2002 Saudi-sponsored Arab-Israeli terms of negotiation.

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