An Orderly Decline |
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October 30, 2009
The financial crisis has pushed the issue of the dollar’s status as the world’s reserve currency to the forefront of the market’s agenda. And as ultra-loose US fiscal and monetary policies have weighed on its value, so calls for an alternative to the US currency as the world’s numeraire have increased.
The financial crisis has pushed the issue of the dollar’s status as the world’s reserve currency to the forefront of the market’s agenda. And as ultra-loose US fiscal and monetary policies have weighed on its value, so calls for an alternative to the US currency as the world’s numeraire have increased.
China has been in the vanguard, with Zhou Xiaochuan, central bank governor, calling for the creation of a new super-sovereign currency. Zhou said in March that the role could be filled by the so-called special drawing right, a basket of currencies used as a unit of account by the International Monetary Fund.
Russia has been vocal in its support for the proposal. At the G8 summit in Italy in the summer, Dmitry Medvedev, president, unveiled a coin he said represented a “united future world currency”. “We are discussing both the use of other national currencies, including the rouble, as a reserve currency, as well as supranational currencies,” he said. Many analysts see such rhetoric as a distraction, arguing there is little prospect of the dollar being supplanted in the near future. Indeed, the comments from China and Russia are widely regarded as reflecting fears over the value of their own dollar holdings.
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