A new United Nations report released on Tuesday [29 Jun 2010] calls for abandoning the U.S. dollar as the main global reserve currency, saying it has been unable to safeguard value.<\/p>\n
But several European officials attending a high-level meeting of the U.N. Economic and Social Council countered by saying that the market, not politicians, would determine what currencies countries would keep on hand for reserves.<\/p>\n
“The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency,” the U.N. World Economic and Social Survey 2010 said.<\/p>\n
The report says that developing countries have been hit by the U.S. dollar’s loss of value in recent years.<\/p>\n
“Motivated in part by needs for self-insurance against volatility in commodity markets and capital flows, many developing countries accumulated vast amounts of such (U.S. dollar) reserves during the 2000s,” it said.<\/p>\n
The report supports replacing the dollar with the International Monetary Fund’s special drawing rights (SDRs), an international reserve asset that is used as a unit of payment on IMF loans and is made up of a basket of currencies.<\/p>\n
“A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency,” the U.N. report said.<\/p>\n
The report said a new reserve system “must not be based on a single currency or even multiple national currencies but instead, should permit the emission of international liquidity — such as SDRs — to create a more stable global financial system.”<\/p>\n
“Such emissions of international liquidity could also underpin the financing of investment in long-term sustainable development,” it said.<\/p>\n
MARKETS DECIDE<\/p>\n
Jomo Kwame Sundaram, a Malaysian economist and the U.N. assistant secretary general for economic development, told a news conference that “there’s going to be resistance” to the idea.<\/p>\n
“In the whole post-war period, we’ve essentially had a dollar-based system,” he said, adding that the gradual emission of SDRs could help countries phase out the dollar.<\/p>\n
Nobel Prize-winning economist Joseph Stiglitz, who previously chaired a U.N. expert commission that considered ways of overhauling the global financial system, has advocated the creation of a new reserve currency system, possibly based on SDRs.<\/p>\n