China, Others, Urge Move Away From Dollar As Reserve Currency
(RFE/RL) -- Should the world ditch the dollar as its
reserve currency? It's an idea that seems to be gaining ground.
Taking aim at the U.S. dollar
The latest call came from China's central bank governor, who said on March 23
there should be a new international reserve currency. And a UN panel this week
is to recommend moving away from the dollar and adopting a shared basket of
Zhou Xiaochuan's message seemed aimed at an international audience. His essay
was published on the central bank's website in English, as well as Chinese.
In it, the governor said the global financial crisis had revealed
"vulnerabilities and systemic risks" in the current monetary system.
Instead, he said the world needed something more stable -- what he called a
"super-sovereign reserve currency."
Zhou didn't mention the dollar specifically. But his comments came two weeks
after the Chinese Prime Minister Wen Jiabao expressed concern over the safety of
China's estimated $1 trillion worth of U.S. investments.
China Not Alone
The worry is that U.S. efforts to tackle the financial crisis -- including
printing money -- could erode the value of the dollar and of China's
Chinese officials are not alone in calling for a move away from the dollar as
the world's chief reserve currency.
Earlier this month, Russia said it would propose a new reserve currency for
discussion at the G20 summit set for April 2.
And a UN panel of experts is this week recommending a switch away from the
dollar as part of an overhaul of the global monetary system.
"Now is the moment to think seriously about a new reserve currency, a shared
reserve currency," panel member Avinash Persaud told Reuters. "When part of the
world wants to save more than it did before, this won't lead to a concentration
of assets in one place, but more spread around the world. It's good for those
people who've got the savings, [because] their assets are diversified, and it's
good for those people where the money is flowing."
Zhou, the Kremlin, and to a lesser degree the UN panel -- all are advocating an
expanded role for the SDR, or "special drawing right." That's a kind of
artificial currency created by the International Monetary Fund 40 years ago. Its
value is based on a basket of "real" currencies -- the dollar, the euro, and
Essentially it's used as an accounting unit for transactions between the IMF and
But Zhou says the SDR could become a "widely accepted" means of payment in
international trade and financial transactions. He also advocates creating
financial assets denominated in SDRs.
Such a move would, the argument goes, reduce the kind of "global imbalances"
that contributed to the current economic crisis.
Chief among them are America's huge current-account deficits and China's equally
China invested its surplus in massive purchases of U.S. treasuries, a factor
blamed for contributing to low borrowing costs in America that fueled its
So the United States might even take a favorable view, says Vanessa Rossi, a
senior research fellow in international economics at the Chatham House think
tank in London.
"Since they've complained so much about these problems about imbalances, and the
flows of money associate with it, they might welcome some of the strain being
taken off the dollar and the dollar markets in the future. Very immediately they
might think that," Rossi says.
"Looking at today's situation, they have other very immediate needs. But if you
look over the next few years, many countries ought to welcome this possible
move. It ought to relieve some of that pressure we've seen over the past years,"
But Rossi says a new reserve currency would pose major challenges, and any move
would be over the longer term.
That's because even if the idea picked up more steam, it's likely to face huge
technical, logistical, and political obstacles.
And it would clearly have negative implications for the dollar.
Even those taking aim at the dollar wouldn't welcome a sudden move, as this
could trigger a sell-off of the dollar and erode the value of their holdings.
Perhaps explaining why Zhou said the establishment of a new reserve currency
"may take a long time."
Sergei Seninski of RFE/RL's Russian Service contributed to this report
Copyright (c) 2009 RFE/RL, Inc. Reprinted with the permission of Radio Free Europe/Radio Liberty, 1201 Connecticut Ave., N.W. Washington DC 20036. www.rferl.org
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