Reforming global monetary system: a serious proposal

(Xinhua)
Updated: 2009-03-27 10:19

BEIJING -- As the current global financial crisis exposes the inherent vulnerabilities and risks in the existing international monetary system, debates on creating a super-sovereign reserve currency are getting heated.

Voicing his opinion, Zhou Xiaochuan, China's central bank governor, said in an article published Monday that a new super-sovereign reserve currency should replace national reserve currencies as the backbone of the global monetary system.

Zhou argued that a new global reserve currency, based on a basket of major currencies and managed by a multilateral organization like the IMF, would transcend the national interest of reserve currency printing countries and contribute to the stability of the international financial system and the development of world economy.

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John Lipsky, IMF first deputy managing director, called the idea of a new global reserve currency a "serious proposal."

It is "natural" to discuss a new global monetary system in the wake of the devastating financial crisis, he told a news conference in Washington on Tuesday

Just as Zhou said, "the frequency and increasing intensity of financial crisis following the collapse of the Bretton Woods system suggest that the costs of such a system to the world may have exceeded its benefits. The price is growing even higher, not only for the users, but also for the issuers of the reserve currencies."

He also proposed to expand the role of the Special Drawing Right (SDR) created by the IMF in 1969 in international trade, commodities pricing, investment and corporate bookkeeping.

Zhou's argument is part of a bigger international debate on reforming the global monetary system.

The United Nations and some major emerging economies have been calling for overhauling the global monetary system to make sure financial crises like the current one will not haunt the world economy again in years to come.

A panel of UN-appointed economic experts called this week for a new global reserve system using a broad basket of world currencies as one of the longer-term reforms to rebuild the global monetary system.

The panel, led by Nobel Prize-winning economist Joseph Stiglitz of the United States, said the dangers of a single-country reserve system have long been recognized, as the accumulation of debt undermines confidence and stability.

Russian officials said last week that the country would come up with a proposal for a new international reserve currency at the upcoming meeting of leaders of G20 countries scheduled for April 2 in London.

The proposal was supported by some other emerging economies like Brazil, India, South Korea and South Africa, according to Russian officials.

Although the United States, issuer of the US dollar which composes more than 60 percent of world reserve currency, has brushed aside the need for a new global reserve currency, it won't block fresh ideas about reforming the global monetary system, analysts say.

"I'm sure the discussion will continue on this and other approaches to improve the working of the international system," Lipsky said.

Vanessa Rossi, a senior research fellow in international economics at the Chatham House think tank in London, said: "If you look over the next few years, many countries ought to welcome this possible move (to create a new global reserve currency)."

"It ought to relieve some of that pressure we've seen over the past years," he told Radio Free Europe.

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