Joseph Stiglitz: ‘IMF reserve currency’ can be phased in within a year ... and then there is ... IMF'S, Strauss-Kahn: "The Yuan, also known as the renminbi, could be added in a "while," in the basket of currencies to fix the value of SDR, at a press briefing in Beijing today. The move would require the currency to be market-based, he said.
March 31, 2009UNITED NATIONS: A reserve currency system based on an IMF unit instead of the US dollar, a proposal floated by China, could be phased in within a year, Nobel Prize-winning economist Joseph Stiglitz said on Thursday.
Stiglitz, a Columbia University economics professor who heads a UN expert panel analyzing the financial crisis and recommending reforms, addressed an issue that became a hot topic this week.
Asked at a news conference when the International Monetary Fund’s Special Drawing Rights (SDR) could replace the dollar as the top reserve unit, Stiglitz replied, “It could begin to be phased in next year.
He said the system could be phased in within 12 months. “Realistically, I don’t think it’ll happen that fast,” Stiglitz said.
One of the main issues left to be worked out is how the SDRs would be allocated, he said.
The reserve currency topic is expected to come up at next Thursday’s London summit meeting of the Group of 20 big developed and developing nations on the financial crisis.
Stiglitz’s panel has issued a set of recommendations for global financial reforms, including a proposal for a new SDR-based reserve system.
In an 18-page report released on Thursday, the panel said such a system “could contribute to global stability, economic strength, and global equity.” The panel said such an SDR system would be “feasible, non-inflationary, and could be easily implemented."
Russia earlier this month proposed creating a new reserve currency, to be issued by international financial institutions. This week, China outlined how SDRs could take over the dollar’s role as the global reserve unit.
US Treasury Secretary Timothy Geithner said the dollar would remain the top reserve currency but expressed openness to the expanded use of SDRs.
Stiglitz said there was a “growing consensus that there are problems with the dollar reserve system.” He added that economists have been discussing the weaknesses of single-currency reserve systems for decades.
“One of the problems (with single currency reserves) is that because of the huge level of volatility, countries are accumulating large amounts of reserves,” he said.
The use of dollar reserves was also “contributing to the weakness of the global economy,” the former World Bank chief economist said.
“The dollar reserve system is deflationary, unstable and it also has some inequity associated with it,” Stiglitz said.
Stiglitz said the effect of the dollar reserve system is that developing countries have been lending the United States trillions of dollars at almost zero interest rates when they themselves desperately need that money.
“It’s a net transfer, in a sense, to the United States of foreign aid,” he said.
Brazil’s President Luiz Inacio Lula da Silva also weighed in on the issue on Thursday. In a news conference with British Prime Minister Gordon Brown, he said it was important to discuss Russia’s proposal but did not elaborate.
However, Canada’s finance minister, Jim Flaherty, predicted in Ottawa that China’s SDR proposal would not get much attention.
Stiglitz, asked about the US and world economic outlooks, was not optimistic. He said rich countries were doing too little to help developing nations.
“There won’t be a robust (US) recovery until there’s a whole global robust recovery,” Stiglitz said. “If there’s going to be a global robust recovery, you have to bring in the developing countries, and right now we’re not doing that. And they’re just beginning to be hit.”
UN Secretary-General Ban Ki-moon has written to G20 leaders urging them to approve a $1 trillion stimulus package to help developing nations weather the financial crisis.
http://truthmovement.com/?p=73
and ...
18 November 2009
'Yuan May Enter IMF Kitty (Basket) to Evaluate SDR'
Dominique Strauss-Kahn, the managing director of the International Monetary Fund, said that the yuan may be added in future to the basket of the basket of currencies that set the value of IMF monetary units called special drawing rights (SDRs).
The Yuan, also known as the renminbi, could be added in a "while," in the basket of currencies to fix the value of SDR, Strauss-Kahn said at a press briefing in Beijing today. The move would require the currency to be market-based, he said.
IMF chief on Monday had also supported efforts to create a new global currency, saying that one based on SDRs could be possible in a decade.
"It's not going to happen tomorrow, but it may happen in 10 years, 15 years," he said. "The yuan must be included in the SDRs basket," former IMF managing director Michel Camdessus said at a forum in Beijing on Tuesday.
US President Barack Obama said that a Chinese currency that reflected "economic fundamentals" would aid the global economy.
Strauss-Kahn repeated calls for the yuan to strengthen. China is encouraging the settlement of trade in yuan. The government allowed companies in Shanghai and four other cities in the southern province of Guangdong to take part in a pilot settlement program beginning July 2.
The settlement is initially limited to trade with Hong Kong, Macau, and the Asean. Tuesday's comments highlight the widening role for the currency of the world's fastest-growing major economy at a time when officials from countries including China and Russia have challenged the dollar's dominant position.
While China is arranging for more cross-border trade to be settled in yuan, the currency is limited by not being freely convertible.
"The stability of the international financial system can't hinge on the currency of one single country, even though that's the largest economy in the world," said Hua Ercheng, chief economist in Beijing at China Construction Bank Corp and a former economist with the Washington-based IMF.
"The currency basket of SDRs needs to be more representative to diversify risks." China has held the yuan at about 6.83 per dollar since July last year, after allowing a 21% gain in the previous three years, seeking to shield exporters from slumping demand.
The Dollar index, which tracks the greenback against six currencies including the euro and yen, has declined 8% this year. China's central bank governor Zhou Xiaochuan has this year advocated a greater use of SDRs and called for a "super- sovereign reserve currency."
India and Russia have also called for a replacement for the dollar as the main reserve currency after the financial crisis sparked by the collapse of the US mortgage market led to the worst global recession since the 1930s.
"We must reform the international monetary system," Yu Yongding, a former Chinese central bank adviser, said at a forum in Beijing on Tuesday. "A good monetary system should make us confident. But we don't have confidence in the US dollar now.
"The idea that "after a while it will be possible" for the yuan to be added to the SDRs" is something which I think is going in the right direction," Strauss-Kahn said. "But of course it is linked also to the fact that the value of the renminbi will have then to be set by the market prices and it goes with the evolution of the renminbi."
http://timesofindia.indiatimes.com/biz/international-business/Yuan-may-enter-IMF-kitty-to-evaluate-SDR/articleshow/5241400.cms
update Feb. 2011 ~ IMF Chief Urges Changes to Monetary System, Advocates Adding Yuan to SDRs
