Cable says new reserve currency "sensible"

Britain remains in "a fairly good position" to weather the current financial storms because of the market credibility earned by the Government's deficit reduction strategy, Business Secretary Vince Cable said.

Mr Cable was speaking as the world absorbed the shockwaves of the downgrading of America's cherished Triple-A credit rating for the first time in its history.

Rating agency Standard & Poor's said it was marking the US down a notch to AA+ because the deficit reduction plan passed by Congress on Tuesday did not go far enough to stabilise the country's debt situation.

However, it was not immediately followed by the two other major credit rating agencies, Moody's and Fitch, which continued to rank the US as a AAA nation, alongside Britain.

The downgrade sparked a biting response from America's largest creditor, China, which called on the US to end its "debt addiction" and even suggested that the dollar may have to cede its position as the world's reserve currency. India's finance minister Pranab Mukherjee said the situation was "grave".

The development came at the end of a week of turmoil on markets around the world, which saw the FTSE 100 in London lose almost 10% - or £150 billion - of its value, while the eurozone was rocked by fears over whether Italy and Spain can pay their debts.

Unconfirmed reports suggested that finance ministers or officials of the G7 group of industrialised nations may hold a telephone conference call over the weekend to steady nerves ahead of the markets opening on Monday.

The Chinese have been arguing for a long time that the world monetary system needed reforming and that we need a strong reserve currency, by which I think basically they mean the special drawing rights of the IMF," Cable told BBC TV.

"This argument's been around a long time and it would be a sensible way for the world to move but it's not something we're going to do overnight."

Cable has been a vocal critic of the U.S. Congress's protracted arguments to agree a deficit-cutting deal and had warned that Washington's triple-A sovereign debt rating was at risk.

"In the short run, the United States dollar is the key international currency and although, frankly, the American legislators made a terrible mess of things a few weeks ago, they have now got back on track, they have undertaken to manage their debt in a prudent way," he said.