China’s central bank on Monday along with Russia proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund (IMF). And, President Obama played the fiddle while Rome burned. No, I have my stories wrong. It was Nero who fiddled, as the story goes; however, President Obama chuckled it up on the Jay Leno show while the dollar and the U.S. financial system collapses.
Analysts said the proposal was an indication of Beijing’s fears that actions being taken to save the domestic U.S. economy would have a negative impact on China.
To replace the current system, China suggested expanding the role of special drawing rights (SDRs), which were introduced by the IMF in 1969 to support the Bretton Woods fixed exchange rate regime but became less relevant once that collapsed in the 1970s.
Today, the value of SDRs is based on a basket of four currencies – the US dollar, yen, euro and sterling. These SDRs are used largely as a unit of account by the IMF and some other international organizations.
China’s proposal would expand the basket of currencies forming the basis of SDR valuation to all major economies and set up a settlement system between SDRs and other currencies so they could be used in international trade and financial transactions.
Source: Financial Times.com (March 23, 2009)
No comments:
Post a Comment