By Rebecca Christie

March 25 (Bloomberg) -- Treasury Secretary Timothy Geithner sent the dollar tumbling with comments about China’s ideas for overhauling the global monetary system, only to drive it back up by affirming that it should remain the world’s reserve currency.

Geithner was initially asked at a Council on Foreign Relations event in New York about proposals from People’s Bank of China Governor Zhou Xiaochuan for a new international reserve currency. He said “as I understand his proposal, it’s a proposal designed to increase the use of the IMF’s special drawing rights. And we’re actually quite open to that.”

The dollar slid as much as 1.3 percent against the euro within 10 minutes of news accounts of Geithner’s remarks. The U.S. currency was down 0.6 percent at $1.3553 as of 12:31 p.m. in New York.

Roger Altman, who worked with Geithner as deputy Treasury secretary in the Clinton administration, later asked Geithner whether he wanted to “clarify” his remarks.

“I’d like to ask one final question, in effect on behalf of the market,” said Altman, founder of Evercore Partners Inc. “Let me ask the question this way. Do you see any change over the foreseeable future in the basic role of the dollar as the world’s key reserve currency?”

‘Strong’ Dollar

Geithner responded by saying that “I think the dollar remains the world’s dominant reserve currency.” In an interview with CNBC broadcast after the event, the Treasury chief said that a “strong dollar” is in “America’s interest.”

In his earlier response, Geithner said an increased use of SDRs should be “rather evolutionary, building on the current architecture, rather than moving us to global monetary union.”

Those remarks don’t indicate Geithner favors moving to a system with the SDR as a reserve currency, strategist Lee Hardman at Bank of Tokyo-Mitsubishi Ltd. wrote in a note.

“That was the big concern amongst the confusion,” London- based Hardman said. “A move to an SDR-linked system away from the dollar would naturally lead to a reduction in the dollar’s share of global reserves.”

Geithner, a former Treasury undersecretary for international affairs and president of the Federal Reserve Bank of New York, which carries out U.S. interventions in currency markets, also said that “we will do what’s necessary to make sure we’re sustaining confidence in our financial markets.”

Bernanke, Obama

Geithner and Fed Chairman Ben S. Bernanke both told lawmakers yesterday that they expected the dollar to remain the most important global currency. President Barack Obama said at a news conference late yesterday that “the dollar is extraordinarily strong” because investors are confident in the ability of the U.S. to lead a worldwide recovery, and also rejected calls for a new global currency.

China is the largest foreign holder of U.S. Treasuries, and Premier Wen Jiabao earlier this month expressed concern about the value of its investment. Central bank governor Zhou this week advocated a “super-sovereign reserve currency” that’s disconnected from any individual nation.

Zhou said, in an essay posted on the PBOC’s Web site, that the IMF’s special drawing rights, a unit of account at the fund used for member countries’ reserves with the IMF, offer “light in the tunnel for the reform of the international monetary system.” He said the SDR has yet to be “put into full play due to limitations on its allocation and the scope of its uses.”

Geithner said in his interview with CNBC that “China is playing a very important stabilizing role in this financial crisis we’re seeing globally.” U.S. officials are “working very, very closely with them. I think they have a lot of confidence in the policies we’re pursuing,” he also said.

To contact the reporter on this story: Rebecca Christie in Washington at Rchristie4@bloomberg.net