A new international currency
KENNETH ABEYWICKRAMA
The global economic giants are in serious trouble and there is no
agreement on how they can get out of this. The USA possesses the main
international currency, the US dollar, which is also the reserve
currency of most developing countries.
 |
|
As many countries are now wary of
buying US dollars for their reserves, the US Treasury in
buying its own notes, passing on the burden to the already
overburdened US citizens. |
It had national a debt exceeding US$ 11 trillion at the end of 2008
and is now creating another US$2.5 trillion to recover from the collapse
of its major financial institutions and the consequent loss of credit
for businesses and consumers.
As many countries are now wary of buying US dollars for their
reserves, the US Treasury in buying its own notes, passing on the burden
to the already overburdened US citizens. In the UK, the government bond
issue was under-subscribed for the first time since 2002. A serious vote
of No-Confidence for the pound sterling that was the main international
currency before the US dollar took over in 1944.
How does the rest of the world react? At the EU Parliament meeting on
March 24, the President of the European Union, Mirek Topolanek of the
Czech Republic, condemned the USA 'stimulus package' as undermining the
stability of global financial markets.
He called it 'the Road to Hell'. Gordon Brown of the UK and Nicholas
Sarkozy of France want a more modest European stimulus plan to spend
ƒ,ª200 billion but Angela Merkel, the German Chancellor, wants no part
of it.
The next G20 meeting of the top economies of the world will be
divided on this issue, with each country seeking its own salvation, just
as the USA and UK have done so far. Most Europeans believe that what the
world needs is properly regulated financial markets, not the speculation
and gambling in finance that the USA promoted over the last two decades
to create its economic bubble and exaggerated prosperity.
The first shots were fired at the World Economic Forum in Davos,
Switzerland, in January of this year. The first speaker, the Russian
Premier Vladimir Putin, raised the grave danger of the over-reliance of
the world on the USA dollar. Putin does not mince his words and he went
on to say:
"The entire economic growth system, where one regional centre prints
money without respite and consumes material wealth, while another
regional centre manufactures inexpensive goods 'has suffered a
setback'."
His criticism was followed in much more diplomatic form by the
Chinese Premier Wen Jiabao who called for an international body to
regulate the world's major reserve currencies.
These views are now issued again in more concrete form by the
Governor of the Central Bank of China, Zhou Xiaochuan on March 26, ahead
of the next G20 summit of April 2.
China holds the world's largest foreign reserves, exceeding US$2.0
trillion, and its voice has gained strength in international forums
because of the solid strength of its economy. Zhou has called for the
use of the IMF's Special Drawing Rights (SDRs) as the international
reserve currency, with no country having a control over it. This view
will gain more support as the crisis in the USA deepens.
The idea has history behind it. An independent international reserve
currency was first proposed by John Maynard Keynes, the world famous
economist, at the Bretton Woods Conference on 1944 which set out to
design a new world financial order.
He proposed the creation of an international currency named 'bancor',
against which all other currencies would be weighted, which would be
managed by an independent International Clearing House.
He was the British delegate at the conference but his idea was shot
down by the USA in favour of the US dollar as the reserve currency which
would be backed by gold.
The USA was then the world's biggest creditor nation. Today it is the
world's biggest debtor. Is it now time for change? |
