Roubini says EM clout to keep growing

By Steven C. Johnson and Vivianne Rodrigues

NEW YORK (Reuters) - The influence of emerging markets in the world economy will continue to expand and ultimately contribute to ending the dollar's reign as global reserve currency, economist Nouriel Roubini said on Tuesday.

Roubini, who predicted the current financial crisis, said at a Reuters Investment Outlook Summit in New York "the rise of emerging markets is a fundamental change" and predicted China's economy will eventually grow larger than that of the United States'.

China and other heavyweight emerging economies such as Russia and Brazil are now among the top U.S. creditors, and as they grow stronger will gradually lose appetite for financing rising U.S. budget and current account deficits, he said.

"Over time, the willingness of the U.S. creditors to finance (U.S. spending) and buy dollar reserves is going to be reduced," Roubini said. "People are getting nervous rightly about us devaluing or inflating our way out of the debt problem and causing real losses on the holdings of those assets."

The process of moving away from the dollar, however, will take many years, said Roubini, who is chairman of New York-based research firm RGE Monitor.

"Declines of major reserve currencies do not occur overnight. It's a slow process that takes decades," he said, noting the gradual shift in the 20th century from sterling to the dollar. "This century could be the Asian or Chinese century, but that will occur over time."

For now, he said China and others with large dollar holdings have no choice but to keep accumulating dollar assets. Otherwise, they would face upward pressure on their currencies and an accelerated decline in exports.

Emerging market heavyweights Brazil, Russia, India and China, also known as the BRICS, who were meeting in Russia on Tuesday called for a "diversified, stable and predictable currency system."