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Monday, 8 March 2010
Look into creating a new reserve currency: IMF chief
The head of the International Monetary Fund said on Friday that it would be ‘intellectually healthy to explore’ the creation of a new global reserve currency to reduce dependence on the US dollar.
Look into creating a new reserve currency: IMF chief
His remarks signal concerns over the reliance on the US dollar
New York Times 01 March 2010
The head of the International Monetary Fund said on Friday that it would be ‘intellectually healthy to explore’ the creation of a new global reserve currency to reduce dependence on the US dollar.
The governor of China’s central bank made a similar proposal in March last year, arguing that ‘special drawing rights’ - a basket of currencies issued by the IMF made up of the euro, yen, pound and US dollar that has served as a reserve asset - would be more stable than the dollar.
China’s huge holdings of dollar reserves in the form of Treasury securities have caused concern for officials on both sides of the Pacific.
While acknowledging the dollar’s role as a ‘safe haven’ during the economic crisis, IMF managing director Dominique Strauss- Kahn said that a new reserve currency would ‘limit the extent to which the international monetary system as a whole depends on the policies and conditions of a single, albeit dominant, country’.
Few economists believe the dollar’s status as the dominant foreign exchange reserve will change anytime soon. Indeed, Mr. Strauss-Kahn said in his speech that while the IMF might be called upon to provide a globally issued reserve asset some day, ‘that day has not yet come’.
Even so, his remarks signalled broader concern over the reliance on the dollar. It has been the world’s reserve currency since the modern international monetary system, and the IMF, were created in Bretton Woods in 1944.
The speech also had implications for China’s desire to take more of a role in multilateral organisations. On Wednesday, Mr. Strauss-Kahn named Zhu Min, deputy governor of China’s central bank, as a special adviser.
The IMF, historically led by a European but dominated by the US, has tried more to engage emerging economies like Brazil, China, India and Russia.
Mr. Strauss-Kahn’s speech also called for improved surveillance of systemic financial risk and expanded tools to respond to economic crises. Resources of the fund, which has 186 member nations, grew to US$850 billion in the last year, which Mr. Strauss- Kahn said should be adequate to meet needs in the coming period.
Asked for a response to the remarks, the US Treasury Department pointed to its most recent foreign exchange report, released in October. That report said that ‘as long as the United States maintains sound macroeconomic policies and deep, liquid and open financial markets, the dollar will continue to be the major reserve currency’.
As of 2009, the dollar was about 60 per cent of foreign reserves, compared to less than 30 per cent for the euro, followed far behind by the pound and the yen.
Although the euro zone is similar to the US in size, share of global trade, currency convertibility and soundness of macroeconomic policies, the report found that the euro has not become the dollar’s equal as a reserve currency because there is no common sovereign debt market across the euro zone. ‘This reduces the ease with which holders of euro-dominated securities can buy and sell them, compared with US Treasury securities,’ the report said\. \-- NYT
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Look into creating a new reserve currency: IMF chief
His remarks signal concerns over the reliance on the US dollar
New York Times
01 March 2010
The head of the International Monetary Fund said on Friday that it would be ‘intellectually healthy to explore’ the creation of a new global reserve currency to reduce dependence on the US dollar.
The governor of China’s central bank made a similar proposal in March last year, arguing that ‘special drawing rights’ - a basket of currencies issued by the IMF made up of the euro, yen, pound and US dollar that has served as a reserve asset - would be more stable than the dollar.
China’s huge holdings of dollar reserves in the form of Treasury securities have caused concern for officials on both sides of the Pacific.
While acknowledging the dollar’s role as a ‘safe haven’ during the economic crisis, IMF managing director Dominique Strauss- Kahn said that a new reserve currency would ‘limit the extent to which the international monetary system as a whole depends on the policies and conditions of a single, albeit dominant, country’.
Few economists believe the dollar’s status as the dominant foreign exchange reserve will change anytime soon. Indeed, Mr. Strauss-Kahn said in his speech that while the IMF might be called upon to provide a globally issued reserve asset some day, ‘that day has not yet come’.
Even so, his remarks signalled broader concern over the reliance on the dollar. It has been the world’s reserve currency since the modern international monetary system, and the IMF, were created in Bretton Woods in 1944.
The speech also had implications for China’s desire to take more of a role in multilateral organisations. On Wednesday, Mr. Strauss-Kahn named Zhu Min, deputy governor of China’s central bank, as a special adviser.
The IMF, historically led by a European but dominated by the US, has tried more to engage emerging economies like Brazil, China, India and Russia.
Mr. Strauss-Kahn’s speech also called for improved surveillance of systemic financial risk and expanded tools to respond to economic crises. Resources of the fund, which has 186 member nations, grew to US$850 billion in the last year, which Mr. Strauss- Kahn said should be adequate to meet needs in the coming period.
Asked for a response to the remarks, the US Treasury Department pointed to its most recent foreign exchange report, released in October. That report said that ‘as long as the United States maintains sound macroeconomic policies and deep, liquid and open financial markets, the dollar will continue to be the major reserve currency’.
As of 2009, the dollar was about 60 per cent of foreign reserves, compared to less than 30 per cent for the euro, followed far behind by the pound and the yen.
Although the euro zone is similar to the US in size, share of global trade, currency convertibility and soundness of macroeconomic policies, the report found that the euro has not become the dollar’s equal as a reserve currency because there is no common sovereign debt market across the euro zone. ‘This reduces the ease with which holders of euro-dominated securities can buy and sell them, compared with US Treasury securities,’ the report said\. \-- NYT
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