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Several people have asked how to specify the character encoding that Drupal uses. The short answer is: you can't.
Drupal uses UTF-8 for encoding all its data. This is a Unicode encoding, so it can contain data in any language. You no longer need to worry about language specific encodings for your website (such as Big5, GB2312, Windows-1251 or 1256, ...). Also, when Drupal imports external XML data (such as RSS or XML-RPC), it is automatically converted into UTF-8 (iconv support for PHP will be required for most encodings).
If you really want to change Drupal's encoding, you will experience a lot of troubles, because of the various ways Drupal can receive and send out data (web, e-mail, RSS, XML-RPC, etc).