Dollar concerns lend impetus for new reserve currency
Published: 26 March, 2009, 10:00
Edited: 12 August, 2010, 04:04
TAGS: Investment, Markets, Currencies, Economy
A leading economist claims that Moscow's proposal to ditch the dollar as the world's reserve currency will sink the world economy. It comes as Russia's Central Bank says it is pushing ahead with the plans.
The value of foreign states' dollar reserves is reeling after Washington's decision to print its way out of the crisis. This week the Governor of China's Central Bank followed the Russian President's call to replace dollars with Special Drawing Rights of the International Monetary Fund (IMF) as the main international reserve currency. The Russian Central Bank is already looking into the details, according to Deputy Chairman Aleksey Ulukayev.
“We've just started discussions on a new financial architecture and currency system. There's promise in the IMF’s currency instruments.”
Meanwhile Russia's pushing international reserve and trading currency status for the rouble. Finance Minister, Aleksey Kudrin says that in the former Soviet Union, it has already made it.
«90% of our exports to Belarus are already paid in Russian roubles. A host of neighbouring countries now use it to pay us.»
To halt stockpiling increasingly vulnerable paper may sound like good sense. But Professor Vasily Solodkov, Banking Institute Director at the Higher School of Economics, warns now is not the time.
“The largest consumer market in the world is the United States, so the recovery of the world economy very much depends on the US market. There's no actual support for the US dollar as a reserve curency, that's an objective fact. But if we try to artificially undermine the situation with a new currency, it could worsen the whole situation for all markets.”
The White House has mounted a defence at the top level. On Tuesday moves to ditch the dollar were slammed by the Treasury Secretary, the Chairman of the Federal Reserve and President Obama. Beijing now says its comments were misunderstood.
25.03.2009, 21:19
Norilsk Nickel probe unnerves investorsThe announcement of a Government probe into Norilsk Nickel’s share buyback and asset purchases in 2008 has underlined investor wariness, and seen the share price hit. |
26.03.2009, 14:08
The End… Or to be continued?Russia’s movie industry is already feeling the chill of the economic slowdown and, experts warn, the sector will see the ice age in the near future. |
The heavy dependency of the world on USD as the only currency for reserve will continue to result in recurring economic and financial crisis. Both economically and politically the world's dependence on the US will be sustained as a result of the use of the dollar as the only resereve. The time has come for the world to change the imbalance and multipolarizing the economic and political power, and the chance should not be mised. But the big statetes must not forgate as they continue to forgate africa and the rest of the 3rd world they will sufer again.
Before anyone comments on whether using SDRs as a new supranational currency, s/he should read the article by Zhou Xiaochuan titled, "Reform the International Monetary System." Here's the link: http://www.pbc.gov.cn/english/detail.asp?col=6500&id=178 The article is quite thoughtful and logical. Couple points: 1. The idea of creating a international currency is not new. See Mr. Xiaochuan's article for the history. 2. SDRs do not, necessarily, have to REPLACE the US Dollar immediately. Rather, SDRs could serve as a currency used initially by Central Banks and international institutions, like the IMF. 3. The global supply of US Dollars, of which 2/3rd's is held outside the US, could be exchanged for SDRs and the US Dollars could be "retired" thereby not increasing the excess supply of US Dollars and the possibility of inflation. 4. George Soros (not my favorite economist due to his emotionally negative position on Russia) has suggested that oil might be an excellent asset upon which the SDRs could be valued. He wrote about this topic over 20 years ago in his book, "The Alchemy of Finance." I think it is well worth the Russians to look into Soros' suggestions regarding using oil as the asset which might back SDRs instead of the Chinese suggestion of a basket of currencies or Keynes' suggestion of a basket of commodities. 5. The first step in making this a reality is for the new loaner countries to the IMF (read: the BRIC countries) to demand that the IMF governing structure by broadened beyond the US and Europe. This is an issue that should be pushed hard because, in my opinion, the root cause of the global monetary crisis can be directed attributed to the oversupply of US Dollars worldwide over the past 18 years. The bail-out programs in Washington are only aimed at alleviating the symptoms but do not address the root cause. A switch to SDRs as the global reserve currency of choice would actually solve the problems facing monetary markets.
Do not forget that the IMF has been an instrument of USA to empoverish nations. Creating large debts in targeted nations, thus making them excellent milchcows. They try to pay debts that are impossible to pay off. USA has often installed fascistic dictatorships in those nations. The illusion that the IMF would be a savior to undeveloped nations is just that: an illusion. The IMF is an machiavellic organization that has dual faces. One for the general public and then its true face, the empoverisher of nations. USA will never let go of such useful instrument that has served him so well. It is thanks to the IMF that USA is the richest nation that can support the largest army on the planet. This allows USA to do any mischief they want.