Dollar is world currency "for a reason": Paulson

Treasury Secretary Henry Paulson on Friday defended the dollar's status as the world's reserve currency, saying the U.S. economy's strength, openness and competitiveness would "shine through" the current market turmoil.

"The dollar has been the world's reserve currency since World War II and it's been that for a reason. We are the biggest economy in the world, we are as open as any economy to investment, to trade, and we've had stable economic policies ... we've had good productivity," Paulson told reporters at an impromptu news briefing on Friday.

Paulson repeated the administration's oft-stated mantra that a strong dollar is in U.S. interests and that currency values should be set in a competitive marketplace.

He acknowledged he has heard questions about the status of the dollar as the world's preferred reserve currency. While the housing downturn and credit market turbulence are likely to have an impact on the U.S. economy, there is underlying strength, he said.

"I have no doubt that looking out over any reasonable period of time, you're going to see our strong economic fundamentals in this country shine through," he said.

The slumping U.S. dollar's dominant position as the world's reserve currency has diminished as the euro has become increasingly popular.

This week a Chinese official said the country's foreign exchange policy should take advantage of the appreciation of some currencies to offset the depreciation of other currencies, stoking concerns China might curb purchases of dollar-denominated assets. Federal Reserve Chairman Ben Bernanke, asked about those worries this week at a congressional hearing, said he expects the dollar to remain the dominant reserve asset.

Paulson's comments came as the dollar hit record lows against a basket of currencies this week on belief that the slowing U.S. economy and credit market troubles would drive the Federal Reserve to additional interest rate reductions.

Meanwhile, the Treasury secretary said that the proposed bank fund aimed at preventing the forced sale of securities by funds known as structured investment vehicles is a private sector measure that will help maintain stability to troubled financial markets.

"I'm focused on orderliness of markets," he said. "My focus is on having there be as little negative impact on the real economy as possible from what's going on in the capital markets." Paulson also said he wants also to reduce volatility in Treasury markets.

The bank super fund should be "up and running" by the end of the year, he added.

Separately, Paulson predicted the Senate would balk at legislation passed on Friday by the House of Representatives to prevent middle-income taxpayers from having to pay a levy aimed at the very wealthy -- the Alternative Minimum Tax -- because it raises taxes for private equity fund managers.

"Given where we are with the economy right now, where we are with the capital markets, I don't think the American people (would support), and I don't think the Senate is going to vote for and send the president a bill which says, 'Raise taxes to pay for the AMT,'" he said.

Because wrangling over the AMT could delay a solution, Congress risks causing delays in taxpayer refunds, Paulson warned.