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Volcker sees no threat to dollar as reserve currency


    NEW YORK (Reuters) - Paul Volcker, the former Federal Reserve chairman who is advising the Obama administration, said the U.S. dollar's role as the world's reserve currency is likely not in jeopardy, but warned central bankers to keep a close eye on inflation.

    Volcker made the comments about the dollar while speaking CLSA's AsiaUSA Forum in San Francisco, according to people who attended the session, which was closed to the media.

    CLSA is a prominent investment group and independent brokerage in Asia.

    The dollar, which has been gaining ground against the euro in the recent weeks, will continue to hold the status as the world's reserve currency because no other has the power to replace it Volcker said.

    But he warned current central bankers to be mindful of inflation and the United States deficit. While inflation does not appear to be a problem, Volcker said that the Federal Reserve needs to be mindful and not act too slowly when prices start to rise again.

    Earlier this year the Obama administration announced plans that would limit proprietary trading at federally insured banks and force them to sell their hedge fund and private equity funds.

    The proposal, now called the Volcker rule, has gained a lot of attention much to the surprise of the former Fed chairman. Volcker said the plan is part of an essential package of changes that also includes reviews of liquidity and using borrowed money or leverage.

    (Reporting by Svea Herbst; editing by Leslie Gevirtz)