_"Adding emerging market currencies such as yuan could help the process of internationalization of these currencies, which would benefit the system as a whole.
_SDRs were created in 1969 to serve as an international reserve asset alongside gold and the dollar. But they have never been a major player in the global system. Under current SDR criteria, a currency must be freely usable.
08 April 2011
Emerging economies to play major role in monetary reform
Monetary stability can be improved if currencies of emerging economies like India and China play a major role in global finance, said IMF chief Dominique Strauss-Kahn.
_He said the currencies of emerging economies should play a greater role in global finance, Strauss-Kahn, the managing director of the 187-nation International Monetary Fund, backed the inclusion of the yuan in a basket of currencies that makes up the IMF's Special Drawing Rights, a type of reserve currency.
_Strauss-Kahn also advocated an expanded role for the SDR to help to bolster the monetary system in the face of damaging volatility.
_Noting the only way the world survived the 2008 financial crisis was through extraordinary international policy cooperation, he warned: "Global imbalances are back."
_Issues that were worrisome before the crisis -- large and volatile capital flows, exchange rate pressures, rapidly growing excess reserves -- were "on the front burner once again," the managing director said at an IMF panel discussion on international monetary reform.
_If the problems were left unresolved, they "could even sow the seeds of the next crisis," he warned.
_Such reform would help address the root of those global imbalances and bolster the system's ability to prevent future crises.
_"When we worry about the deficiencies of the international monetary system, we are mostly worrying about volatility: a sense that money sometimes flows around the globe in too volatile a fashion, and that countries need a more stable, more predictable external environment in order to prosper," the former French Socialist finance minister said.
_Strauss-Kahn recalled that the IMF has been working to limit that volatility through several approaches: by strengthening coordination of economic and monetary policy, stepping up surveillance of capital flows and improving its financial safety net for member nations in need.
_Under a mandate from the Group of 20 developed and emerging economies, representing about 90 percent of global output, the IMF has launched a mutual assessment process that takes into account the global effect of country-level policies.
_France, which holds the rotating G20 presidency this year, has put currency reform at the top of its agenda. Strauss-Kahn's remarks were his clearest yet showing an alignment with the remedies proposed by French President Nicolas Sarkozy.
_As part of a reform toolkit, Strauss-Kahn suggested a central role for Special Drawing Rights. _"Over time, there may also be a role for the SDR to contribute to a more stable international monetary system," he said.
_A key move would be expanding the SDR basket, which currently includes four major currencies: the dollar, euro, yen and pound. _"Adding emerging market currencies such as yuan could help the process of internationalization of these currencies, which would benefit the system as a whole.
_SDRs were created in 1969 to serve as an international reserve asset alongside gold and the dollar. But they have never been a major player in the global system. Under current SDR criteria, a currency must be freely usable.
http://www.commodityonline.com/news/Emerging-economies-to-play-major-role-in-monetary-reform-38033-3-1.html
