China’s central bank has called for the creation of a new global currency in order to substitute the US Dollar as the global reserve currency, highlighting the current financial situation in the US and its affect on global markets.
Chinese central bank Governor Zhou Xiaochuan this week urged the International Monetary Fund to create a “super- sovereign reserve currency.”
China’s stance supports Russia’s recent proposal of a new global reserve currency as an alternative to the U.S. dollar in order to diversify the foreign currency reserves.
“We believe it is necessary to consider the IMF’s role in this process and also define the possibility and the need to adopt measures allowing for Special Drawing Rights (SDRs) to become an internationally recognized super-reserve currency,” Russia’s proposal read.
Russia said its proposal had broad support among other key emerging market economies including Brazil, India, China, South Korea and South Africa.
The dollar has been the world’s reserve currency since the end of World War II. Major commodities, namely oil, are priced in the greenback, and global companies do business in dollars, leading wealthy central banks to prefer to hold dollars to protect against crisis. But, as the U.S. manages the effects of the global financial meltdown by expanding its monetary supply and weakening the value of dollar-denominated assets, some of the U.S.’s largest creditors have grown unhappy as the value of their reserves decline.
The U.S. has not taken this new debate lightly with a number of top officials including U.S. President Barack Obama dismissing the suggestions to move away from using the dollar as the world’s main reserve currency.
“I don’t believe that there’s a need for a global currency,” Obama told a prime-time televised news conference, adding that the dollar is “extraordinarily strong right now”.
Other U.S. allies have also been quick to publicly reject such proposals.
The Australian Prime Minister Kevin Rudd discarded the idea of a new global currency, telling a Washington audience on Monday that the dollar’s position as the reserve currency remains unchallenged.
British Prime Minister Gordon Brown declared the topic of a new global reserve currency to not be a major topic for the upcoming G20 summit.
Image by bradipo under Creative Commons.
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