Skip to comments.Debate on new reserve currency gathers steam
Posted on 11/15/2010 1:33:54 PM PST by FromLori
International debate over reshaping the international monetary system is expected to speed up following last weeks Group of 20 summit.
At the two-day meeting, France, Brazil, China and other members questioned the legitimacy of the U.S. dollar as the worlds dominant reserve currency and called for efforts to upgrade the half-century old order to be relevant to the new era.
The French-led initiative gained momentum, especially from the impact of the recently announced U.S. plan to pump $600 billion into the market, which invited angry reactions from the G20 members.
France, China and Brazil were at the forefront of the charge against the U.S.-led system established in 1945.
Its already a success that the G20 agrees that the international monetary system is a problem, French President Nicholas Sarkozy said in a closing press conference after the two-day summit Friday.
We have to update the international monetary system for the 21st century, he said.
Sarkozy has set reform of the international monetary system as the top priority for his presidency of the G20 next year. Stabilizing raw materials prices and enhancing global governance via G20 mechanism are Sarkozys other priorities for his presidency over the G20.
Chinese President Hu Jintao was quoted as saying a new mechanism is needed as a replacement for the U.S. dollar, saying the value of the dominant currency in the international market needs stability.
Brazils Finance Minister Guido Mantega joined the chorus.
Diversifying currencies is not going to be easy because the worlds trade is based on the dollar but important changes are needed because the global economy is not ruled by a few powerful countries anymore, Mantega said on the same day
Frances push for the reform comes at a time of worldwide quarreling over currency issues. The U.S. blame Chinas allegedly undervalued yuan for its trade deficits while China has its finger pointed Americas loose monetary policy for causing volatilities in the market.
G20 finance ministers are scheduled to meet in Paris in February to discuss the issue and other topics on the table for the summit.
Sarkozy said it would be wise to solicit the input of countries like Switzerland.
Nations with something to say about financial matters should be invited to preparatory workshops (for the next G20 summit) and Switzerland carries weight in the world of finance, Sarkozy said Friday.
The international community complains that a disproportionate share of world trade is conducted in the U.S. dollar, making them vulnerable to Americas loose monetary policy.
More than 80 percent of the worlds foreign exchange transactions are conducted in the greenback when the U.S. accounts for only 24 percent of the global GDP, according to the International Monetary Fund. It accounts for around 60 percent of international reserves and bank deposits.
The recently announced quantitative easing by the U.S. Federal Reserve has cast a shadow over gatherings calling for changes in the U.S-centered international monetary system.
The Fed, on Nov. 3, made a decision to buy $600 billion of U.S. Treasury securities to boost the domestic recovery. The announcement immediately met with worldwide criticism as the move, known as QE2, would further weaken the dollar, appreciate currencies elsewhere, drive up oil prices and exacerbate inflation.
The troubles for other countries also include value depreciation of their reserve assets and having to deal with speculative money inflows.
In addressing its domestic problems, the U.S. ... brings problems for other countries, said Zhuang Jian, a senior economist at the Asian Development Bank.
The World Bank president Robert Zoelick recently said the G20 should consider building a cooperative monetary system that reflects new economic conditions.
The new system will likely need to involve a basket of currencies including the dollar, the euro, the yen, the pound and the renminbi, Chinas currency.
Adding the Chinese yuan to the IMFs Special Drawing Rights basket of currencies could be part of the reform mulled.
Xia Bin, an academic advisor to the Peoples Bank of China, say the dollar-led international currency system is a cause of the recent global financial crisis which should be diversified.
The SDRs are virtual reserve currency at the IMF created in 1969. It is dominated by the U.S. dollar but their nominal value is derived from currencies including the Japanese yen, U.S. dollar, U.K. pound and euro.
France is to hold the G8 Deauville summit in June next year and the G20 Cannes summit on Nov. 3-4.
Alinsky v. China?
If the dollar loses it’s status as the worlds reserve currency it will forever be linked to oblunder and his failed policies.
Our monetary policy has just one goal. Destroy the United States...
Yes, good luck. I’ll try to steer clear, because every time I buy precious metals their value drops by 50%. I wouldn’t want to jinx everyone else.
Try brass, copper, and lead.
Do you recommend outright ownership or stocks?
Would options be a decent idea?
I know what you mean. Just have to keep telling yourself “It’s for the long haul.”
Sure is. It is almost a certainty that the loss of Reserve Currency status for the US dollar will bring on fierce trade wars - followed closely by WWIII.
Many have written about how unlikely it is that the dollar would lose Reserve Currency status - but quite a few now think this is almost a certainty, due to massive debt and deliberate inflation. If Reserve Currency status is lost, we'll see hyper inflation, the dollar becoming practically worthless - and we'll be looking at a depression that will make the last one look like an absolute economic boom.
Sadly, you can't help but think that this is exactly what Obama and his socialist pals have been working hard to create.
I bet 20% debasement will look like nothing if the world moves to a new reserve currency. Who would want fiat currency if a commodity-backed currency were available?
Ron C., this has been my end-game argument since 1992, when Free Trade became king. It was going to contribute to the dismantling of the United States.
Put the U. S. in debt internationally. Watch the internal dynamics undercut our stability. Watch a rejuvenated China walk right in over our dead economy.
The only hitch in the get-along right now, is that there is no other currency to take the dollar’s place. The EURO is in no position to do it. It has it’s own massive problems. Who actually knows if the Euro will exist five to ten years from now. Squabbling in Europe doesn’t put those concerns to rest.
We are lucky with regard to that, otherwise we’d be in one hell of a mess worse than we are now.
Still, we must take action now, before they spend us to a position where all we can do is accept our lot. Obama and the Leftists and the Free Traitors all need to be send packing IMO.
They’re all difference facets of the same problem.
I recommend outright ownership in handy packages of 20 or 50. There are some great manufacturers doing this. I personally recommend Winchester and Federal.
It causes the dollar to be overvalued, leading to the hollowing out of our manufacturing sector because American industry can't compete with foreign goods.
Other than status(?), what is the benefit?