(Adds no comment from U.S. Treasury, comments by British finance minister and German deputy minister in paragraphs 4-8)
By Andrew Torchia
ISTANBUL, Oct 3 (Reuters) - The Group of Seven rich nations hopes to decide its future as an institution on Saturday, with the United States pushing for the creation of a smaller core group that would include China, a G7 official said.
The official, speaking on condition of anonymity, said Washington wanted to see the G7 supplanted in global economic policymaking by a Group of Four that would bring the United States, Europe and Japan together with China.
The official was speaking ahead of a meeting of G7 finance ministers and central bankers in Istanbul later on Saturday.
A U.S. Treasury spokeswoman declined to comment. British finance minister Alistair Darling said, "These proposals have been around for a long time ... You shouldn't read too much into these proposals."
He added, "It is not our position that the G7 is going to be wound up."
Other officials also suggested the G7 would continue to exist, but with a diminished role.
"We will talk about how the G7 will work on, how its role will be in future ... for example the frequency of G7 meetings," said German deputy finance minister Joerg Asmussen.
"In the German view, the G7 should be something like a preparatory body" for meetings of the larger Group of 20 nations, which includes big developing economies such as China and India, he added.
POLICYMAKING
For more than a decade, the G7 dominated international policymaking. But the financial crisis has undermined its power, as economies such as China have become key to managing the global recovery.
Any formal move to supplant the G7, which comprises Britain, Canada, France, Germany, Italy, Japan and the United States, would likely be diplomatically complex and controversial.
Its top finance officials have traditionally met several times a year, seeking to guide foreign exchange rates and other markets through communiques released after their meetings.
But the group's role has appeared in doubt since early this year, when the G20 became the main forum for debating the financial crisis. The G20 has agreed in principle to tighten financial regulation and try to reduce trade imbalances that destabilise the global economy.
"The G7 is not quite dead, but it is losing its relevance," the IMF's managing director, Dominique Strauss-Kahn, was quoted as saying by Emerging Markets magazine on Saturday. "It's on its way to extinction."
Tensions over foreign exchange rates are underlining the difficulty that the G7 is having in staying at the centre of global policymaking.
Persuading China to appreciate its tightly controlled yuan currency is widely seen as crucial to correcting trade imbalances, but China is not a member of the G7.
Japan has sounded keen to preserve the G7 as an important body. On Friday, Bank of Japan Governor Masaaki Shirakawa said the G7 remained a more convenient forum to discuss foreign exchange rates than the G20, because G7 members all had major financial markets. [ID:nT337567]
But some other countries appear unconvinced. Canadian Finance Minister Jim Flaherty said that because discussion of global imbalances would inevitably include the yuan and the impact of the weak U.S. dollar on other economies, global currency discussions needed to extend beyond the G7. [ID:nN02322429] (Editing by Ruth Pitchford)