| | |  Business News | September 2009 
United Nations Conference Calls for New Global Currency
 Stephen C. Webster - The Raw Story
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September 09, 2009
 |  | The dominance of the dollar as the main means of international payments [has] played an important role in the build-up of the global imbalances in the run-up to the financial crisis.
- United Nations report |  | | |
The United Nations Conference on Trade and Development said in a report published Monday that the U.S. dollar should be replaced as the world’s standard reserve currency, giving rise to a new global currency managed by an as-yet undetermined financial regulatory organization.
Heiner Flassbeck, director of the conference, told Bloomberg News that changes needed in the world’s financial systems rival the scope of the Bretton Woods or European Monetary System agreements.
The Bretton Woods agreement established in 1944 the International Monetary Fund and World Bank, following allied victory in World War II.
“[The] dominance of the dollar as the main means of international payments [has] played an important role in the build-up of the global imbalances in the run-up to the financial crisis,” the report says. “Another disadvantage of the current international reserve system is that it imposes a greater adjustment burden on deficit countries (except if it is a country issuing a reserve currency) than on surplus countries.”
The UN adds: “Such a multilateral system would tackle the problem of destabilizing capital flows at its source. It would remove a major incentive for speculation and ensure that monetary factors do not stand in the way of achieving a level playing field for international trade. It would also get rid of debt traps and counterproductive conditionality. The last point is perhaps the most important one: countries facing strong depreciation pressure would automatically receive the required assistance once a sustainable level of the exchange rate had been reached in the form of swap agreements or direct intervention by the counterparty.”
The move should not be surprising to observers of global economics, as a U.N. panel of currency experts came to the same conclusion in March, according to Reuters.
The conference specifically emphasizes the enhancement of the International Monetary Fund’s “special drawing right” (SDR), which may serve as the “supranational” currency.
World-wide shake-up
The past year has seen a dramatic shake-up in oversight and management of the U.S. and global economies.
For months, Russia and China have been calling for a new world reserve currency.
Russia, for its part, supports replacing the dollar on the world stage, suggesting the Chinese yuan may be the quickest path to diversified reserves.
“There is a need to make the IMF a true representative of the world’s leading economies. It’s not there right now,” said Russian finance minister Alexei Kudrin in June, noting that China had a lower representation quota than Switzerland or Belgium.
Kudrin also said he did not expect to see any new monetary unions rise, although the Gulf states agreed in May to use Saudi Arabia as a base for a pending “monetary union” and new central banking authority.
The issue of IMF reform should therefore be raised “in earnest, in a bold way,” Kudrin said, adding countries should be “represented in proportion to the strength of these economies and their role in the world economy.”
Over the weekend, U.S. Treasury Secretary Timothy Geithner argued successfully to strengthen the “Basel II” framework for international commerce, which would see all G20 member nations increase their currency liquidity and allow centralized, “global supervision” of financial industries. The Obama administration is committed to full compliance with the framework by 2011.
The Group of 20 finance ministers and central bank governors plan to meet in Pittsburgh, Pennsylvania on Sept. 24 and 25. Several major liberal groups are planning demonstrations, including the A.N.S.W.E.R. Coalition. The city has already secured a deal to use National Guard troops provide a security buffer for the world’s financial elite during their meeting.
Also on Sunday, a key Chinese official predicted that the dollar’s increasing supply, which grows with added liquidity, meant the currency could “fall hard” within “a year or two.” The official also signaled that China is moving its reserves away from the dollar and toward gold, euros and yen.
Washington has staunchly defended the dollar as the world’s reserve, with President Obama, Federal Reserve chairman Ben Bernanke and Treasury Secretary Timothy Geithner all insisting there is no need for a new global reserve currency.
The UN report which makes the recommendations is available online (PDF). |
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