A United Nations panel of economists has proposed a new global currency reserve that would take over the US dollar-based system used for decades by international banks.
The proposal comes on the heels of the controversial call by China's central bank governor, Zhou Xiaochuan, to create a new world currency reserve to replace the US dollar as part of a sweeping overhaul of global finance, which is suffering its worst crisis since the Great Depression of the 1930s.
China and many developing countries blame the crisis on US mishandling of overextended mortgage loans and investments in them.
"A new global reserve system... with regular or cyclically adjusted emissions calibrated to the size of reserve accumulations, could contribute to global stability, economic strength and global equity," the panel said in a document released in New York.
The call was issued at the end of a three-day conference at UN headquarters in New York on Friday.
Earlier this week, the US said it was open to enlarging the International Monetary Fund's (IMF) currency reserves, but insisted the dollar would remain "the world's dominant reserve currency".
The call comes just days before the world's 20 largest economies (G20) were to meet in London to chart a way out of the global recession.
The UN panel said a new global reserve would be "feasible, non- inflationary and could be easily implemented". It said it would help lessen the difficulties now caused by unbalanced adjustments between surplus and deficit countries.
The 22-member panel is headed by Nobel Economics Prize laureate Joseph Stiglitz, a frequent critic of past US fiscal policy.
"The nature of this crisis has opened up opportunities for change that I think would not have been conceivable even a few months ago," Stiglitz said on Thursday.
The panel made several recommendations to deal with the financial crisis, which it said requires the cooperation of rich and poor nations together to take strong and effective actions to stimulate their economies.
Stiglitz said there has been a growing consensus among UN members that the US dollar-based financial system is problematic. But he warned that the idea of a new global reserve is still a concept that panelists are debating.
He said the current system was "relatively volatile, deflationary, unstable and (had) inequity associated with it".
"Developing countries are lending the United States trillions dollars at almost zero interest rates when they have huge needs themselves," Stiglitz said. "It's indicative of the nature of the problem. It's a net transfer, in a sense, to the US, a form of foreign aid."
The panel, known as the Commission of Experts on Reform of International Finance and Economic Structures, was established by the UN General Assembly last year to deal with the widening economic and financial crisis.
The panel believes the creation of a new global reserve would help poor countries through an improved credit system, built on a system of special drawing rights (SDRs) set up by the International Monetary Fund after World War II.
China's call for a replacement of the US dollar has made the UN proposal for a new currency reserve stronger. Some panelists suggested the SDRs could be used as a new standard of a global reserve currency.
Showing posts with label US Dollar. Show all posts
Showing posts with label US Dollar. Show all posts
Sunday, March 29, 2009
China Calls for a New Global Currency to Replace Dollar
China calls for new global currency
BEIJING (AP) — China is calling for a new global currency controlled by the International Monetary Fund, stepping up pressure ahead of a London summit of global leaders for changes to a financial system dominated by the U.S. dollar and Western governments.
The comments, in an essay by the Chinese central bank governor released late Monday, reflect Beijing's growing assertiveness in economic affairs. China is expected to press for developing countries to have a bigger say in finance when leaders of the Group of 20 major economies meet April 2 in London to discuss the global crisis.
Gov. Zhou Xiaochuan's essay did not mention the dollar by name but said the crisis showed the dangers of relying on one nation's currency for international payments. In an unusual step, the essay was published in both Chinese and English, making clear it was meant for an international audience.
"The crisis called again for creative reform of the existing international monetary system towards an international reserve currency," Zhou wrote.
A reserve currency is the unit in which a government holds its reserves. But Zhou said the proposed new currency also should be used for trade, investment, pricing commodities and corporate bookkeeping.
Beijing has long been uneasy about relying on the dollar for the bulk of its trade and to store foreign reserves. Premier Wen Jiabao publicly appealed to Washington this month to avoid any steps in response to the crisis that might erode the value of the dollar and Beijing's estimated $1 trillion holdings in Treasuries and other U.S. government debt.
The currency should be based on shares in the IMF held by its 185 member nations, known as special drawing rights, or SDRs, the essay said. The Washington-based IMF advises governments on economic policy and lends money to help with balance-of-payments problems.
Some economists have suggested creating a new reserve currency to reduce reliance on the dollar but acknowledge it would face major obstacles. It would require acceptance from nations that have long used the dollar and hold huge stockpiles of the U.S. currency.
"There has been for decades talk about creating an international reserve currency and it has never really progressed," said Michael Pettis, a finance professor at Peking University's Guanghua School of Management.
Managing such a currency would require balancing the contradictory needs of countries with high and low growth or with trade surpluses or deficits, Pettis said. He said the 16 European nations that use the euro have faced "huge difficulties" in managing monetary policy even though their economies are similar.
"It's hard for me to imagine how it's going to be easier for the world to have a common currency for trade," he said.
China has pressed for changes to give developing countries more influence in the IMF, the World Bank and other finance bodies. G20 finance officials issued a statement at their last meeting calling for such changes but gave no details of how that might happen.
Russia also has called for such reforms and says it will press its case at the London summit.
Zhou said the new currency would let governments manage their economies more efficiently because its value would not be influenced by any one nation's need to regulate its own finance and trade.
"A super-sovereign reserve currency managed by a global institution could be used to both create and control global liquidity," Zhou wrote. "This will significantly reduce the risks of a future crisis and enhance crisis management capability."
Zhou also called for changing how SDRs are valued. Currently, they are based on the value of four currencies — the dollar, euro, yen and British pound.
"The basket of currencies forming the basis for SDR valuation should be expanded to include currencies of all major economies," Zhou wrote. "The allocation of the SDR can be shifted from a purely calculation-based system to one backed by real assets, such as a reserve pool, to further boost market confidence in its value."
BEIJING (AP) — China is calling for a new global currency controlled by the International Monetary Fund, stepping up pressure ahead of a London summit of global leaders for changes to a financial system dominated by the U.S. dollar and Western governments.
The comments, in an essay by the Chinese central bank governor released late Monday, reflect Beijing's growing assertiveness in economic affairs. China is expected to press for developing countries to have a bigger say in finance when leaders of the Group of 20 major economies meet April 2 in London to discuss the global crisis.
Gov. Zhou Xiaochuan's essay did not mention the dollar by name but said the crisis showed the dangers of relying on one nation's currency for international payments. In an unusual step, the essay was published in both Chinese and English, making clear it was meant for an international audience.
"The crisis called again for creative reform of the existing international monetary system towards an international reserve currency," Zhou wrote.
A reserve currency is the unit in which a government holds its reserves. But Zhou said the proposed new currency also should be used for trade, investment, pricing commodities and corporate bookkeeping.
Beijing has long been uneasy about relying on the dollar for the bulk of its trade and to store foreign reserves. Premier Wen Jiabao publicly appealed to Washington this month to avoid any steps in response to the crisis that might erode the value of the dollar and Beijing's estimated $1 trillion holdings in Treasuries and other U.S. government debt.
The currency should be based on shares in the IMF held by its 185 member nations, known as special drawing rights, or SDRs, the essay said. The Washington-based IMF advises governments on economic policy and lends money to help with balance-of-payments problems.
Some economists have suggested creating a new reserve currency to reduce reliance on the dollar but acknowledge it would face major obstacles. It would require acceptance from nations that have long used the dollar and hold huge stockpiles of the U.S. currency.
"There has been for decades talk about creating an international reserve currency and it has never really progressed," said Michael Pettis, a finance professor at Peking University's Guanghua School of Management.
Managing such a currency would require balancing the contradictory needs of countries with high and low growth or with trade surpluses or deficits, Pettis said. He said the 16 European nations that use the euro have faced "huge difficulties" in managing monetary policy even though their economies are similar.
"It's hard for me to imagine how it's going to be easier for the world to have a common currency for trade," he said.
China has pressed for changes to give developing countries more influence in the IMF, the World Bank and other finance bodies. G20 finance officials issued a statement at their last meeting calling for such changes but gave no details of how that might happen.
Russia also has called for such reforms and says it will press its case at the London summit.
Zhou said the new currency would let governments manage their economies more efficiently because its value would not be influenced by any one nation's need to regulate its own finance and trade.
"A super-sovereign reserve currency managed by a global institution could be used to both create and control global liquidity," Zhou wrote. "This will significantly reduce the risks of a future crisis and enhance crisis management capability."
Zhou also called for changing how SDRs are valued. Currently, they are based on the value of four currencies — the dollar, euro, yen and British pound.
"The basket of currencies forming the basis for SDR valuation should be expanded to include currencies of all major economies," Zhou wrote. "The allocation of the SDR can be shifted from a purely calculation-based system to one backed by real assets, such as a reserve pool, to further boost market confidence in its value."
Monday, March 9, 2009
Why Recession
The reason for this recession is simple:
1) There is only 1 buyer which has 7% of the world's population but consumes 25% of the world's resources
2) It consumes and consumes but produces nothing
3) Manufacturing and Services both outsources to third world countries where pepole live life in poverty and work hard for two meals a day
4) No savings but only credit cards
5) The world also knows and realized that there is only 1 buyer and keeps producing more and more to satisfy the hunger of this buyer.
6) The world also knows that this buyer is bankrupt but still they have no options because there is no one else to sell to.
7) So US prints currency, Reserver Bank of India, Bank of China and Bank of Japan all keep the Million Dollar Bonds in their vaults, but what is it worth? can you buy something with these dollars from US? What does US sell that it produces on its own?
8) US owes the whole world money
9) How did this keep happening, simple the currency of trade is US Dollars so as trade and consumption and population grows there is more need for reserve currency, people keep dollars with them, US keeps printing more and buying more.
10) The question to ask, what would be the US Dollar to Indian Rupee conversion if we make Indian Rupee the Currency of World Trade?
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