Exchange Rates, Trade Barriers, and the Dollar as Global Reserve Currency (August 2010) ...
Snip ~ from above article ~ By most measures, the dollar is now at least 10% overvalued. There are a number of potential ways to address exchange rates that negatively affect U.S. manufacturing (both over-valuation of the dollar and volatility).
_One option would be an orderly shift toward a new reserve currency system based on the IMF’s special drawing rights (SDRs). SDRs are denominated in dollars, but the nominal value is based on a basket of major currencies, including Japanese yen, U.S. dollars, Euros, and British pounds.
_The concept could be expanded to include other currencies, not least the Chinese renminbi. The shift, implemented over time and in coordination with international partners, would be a positive long-term solution to excess global demand for U.S. dollars.
_Such a shift would necessarily be measured and not without challenges. At present, SDRs make up only about 4%of global reserves, and to become the principal reserve asset, the supply would have to grow tremendously, to about trillion.
_The IMF would have to take on the characteristics of a world central bank, which is sure to be controversial, especially in the U.S., which has veto power over SDR issuances, and will not be anxious to relinquish the prestige associated with the dollar as reserve currency.
_Another option would be for the U.S. to adopt a more coordinated approach to exchange rate policy involving target zones, but retaliation by trading partners, intent on maintaining exchange rate advantage over the dollar might result in uncontrolled growth of money supply in multiple countries, kicking off an unacceptable period of high global inflation.
_A tax on all cross-border currency flows would help dampen speculative currency movements, and could have the additional advantage of raising much-needed funds for global health and development initiatives.
_Such a tax would not be precluded by a move to an SDR-type reserve currency.
LINKS ~ TOBIN TAX - FINANCE TAX
Link from above links ~Introducing a financial transactions tax could raise £100 billion globally
