March 28 (Bloomberg) -- China’s central bank said the Group of 20 summit next week needs to discuss currency reform amid concern U.S. policies may weaken the dollar, hurting owners of assets denominated in the currency.

“We expect world leaders to pay more attention to reforming the global currency system,” Zhang Jianhua, head of research at the People’s Bank of China, told an economic forum in Beijing today. “The dollar is facing a big problem and U.S. policies will potentially weaken the currency.”

Chinese central bank Governor Zhou Xiaochuan this week called for the creation of a new international reserve currency, after China’s Premier Wen Jiabao earlier this month said he was worried about the value of China’s $740 billion in U.S. Treasury holdings. Zhou’s comments prompted U.S. Treasury Secretary Timothy Geithner to defend the dollar’s status.

China will “closely monitor whether and how the Federal Reserve will soak up increased liquidity” to avoid spiraling inflation and currency weakness, Zhang said.

Leaders of the 20 largest industrial and developing nations meet next week in London to look for ways to alleviate the global financial crisis and strengthen international regulation. The World Bank this month said the global economy will probably shrink for the first time since World War II.

Stimulus Effect

Leaders from the world’s fastest-growing major economy, including Zhou and President Hu Jintao, will attend the Group-20 summit on April 2 in London. Evidence that China’s 4 trillion yuan ($585 billion) stimulus package is taking effect is emboldening the nation’s leaders to dictate their vision for a new world economic and financial order.

“Though China is not yet ready to play a leading role in the summit, we will definitely be an important participant,” Zhang said. “Governor Zhou’s super-sovereign reserve currency proposal may not be unanimously recognized, but if it can lead to a greater range of discussions at the G-20, that’s also a success.”

Zhou this week urged the International Monetary Fund to expand the use of so-called Special Drawing Rights and move toward a “super-sovereign reserve currency.” The dollar weakened after the Federal Reserve said March 18 that it would buy $300 billion of Treasuries and the U.S. government outlined plans to buy illiquid bank assets.

A weaker dollar “increases risks for all nations that have large dollar reserves, including China,” Zhang said today.

To contact the reporters on this story: Li Yanping in Beijing at yli16@bloomberg.net

Last Updated: March 28, 2009 03:58 EDT