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> From: dasg...@aol.com > Date: August 5, 2010 8:15:26 PM PDT > To: ramille...@aol.com > Cc: ema...@aol.com, j...@aol.com, jim6...@cwnet.com, christian.r...@gmail.com > Subject: The UN and IMF Agree: US Dollar Too Unsound to Serve as a Global > Currency > > IMF document illustrates plan to raise global currency > > > By Stephen C. Webster > August 5th, 2010 > http://rawstory.com/rs/2010/0805/imf-documents-illustrate-plan-turn-drawing-rights-global-currency/ > > It's no secret that many of the world's largest industrialized nations are > somewhat eager to ease their reliance on the U.S. dollar. For months China > and Russia have pushed ever subtly, for a new "global reserve currency," to > give governments around the world enhanced economic stability in the event of > greater fluctuations in the dollar's value. > > But what wasn't known, until recently, is how far along the International > Monetary Fund was in the planning of elevating its so-called "special drawing > rights" from mere international agreement to an actual, legitimate global > currency. > > The report examines what it calls the "imperfections" of the global reserve > banking structures, and how hoarding of reserves by sovereign nations can > subject the system to risk and occasional shocks. > > In 35 pages of extrapolation and footnotes, the IMF's Strategy, Policy and > Review Department lays out the how and why of a global currency, which would > move from an "inside money" as the SDR to an "outside money" that is traded > by governments. > > However, they conclude that "the ideas discussed are unlikely to materialize > in the foreseeable future absent a dramatic shift in appetite for > international cooperation." > > The PDF document appeared to have been taken offline at time of this writing, > but a cached version was still available. The document is from April, but was > only recently noticed by Financial Times. > > "[In] the eyes of the IMF at least, the best way to ensure the stability of > the international monetary system (post crisis) is actually by launching a > global currency," they note. > > "And that, the IMF says, is largely because sovereigns — as they stand — > cannot be trusted to redistribute surplus reserves, or battle their deficits, > themselves." > > The IMF goes on to explain: > > Reserve accumulation has accelerated dramatically in the past decade, > particularly since the 2003-4. At the end of 2009, reserves had risen to 13 > percent of global GDP, doubling from their 2000 level, and over 50 percent of > total imports of goods and services. Emerging market holdings rose to 32 > percent of their GDP (26 percent excluding China). Twenty-seven of the top 40 > reserve holders, accounting for over 90 percent of total reserve holdings, > recorded double digit average growth in reserves over 1999-2008. > > Holdings have also become increasingly concentrated, with over half the total > held by only five countries. These numbers exclude substantial foreign > assets of the official sector not recorded as reserves, including in > sovereign wealth funds (SWFs), and yet invested in liquid, dollar denominated > financial instruments, that have grown even more in recent years. > > The global currency IMF envisions, they simply call "bancor". They continue: > > though an SDR-based system would move away from a dominant national currency, > the SDR’s value remains heavily linked to the conditions and performance of > the major component countries. A more ambitious reform option would be to > build on the previous ideas and develop, over time, a global currency. > Called, for example, bancor in honor of Keynes, such a currency could be used > as a medium of exchange — an “outside money” in contrast to the SDR which > remains an “inside money”. > > Were the industrial nations of the world to agree to the IMF's prescription > for the global financial system, the fund would undertake a new realm of > responsibilities. It describes them as: > > Encouraging reserve holders to adjust the currency composition of reserves > only gradually and discourage any “active” currency management that could > potentially cause large swings between reserve currencies. > > Requiring all reserve holding members to report their reserve composition to > the Fund (possibly confidentially) including information on reserve holder’s > benchmark for the currency composition of reserves. Using this information, > the Fund could advise reserve holders on the pace of reserve diversification > (if and when the latter express interest inadjusting the currency composition > of their reserves) to maintain stability in the adjustment process, including > during the transition phase to a balanced reserve system. For instance Truman > and Wong (2006) propose an international reserve diversification standard > comprising two basic elements: (i) routine disclosure of the currency > composition of official foreign exchange holdings; and (ii) a commitment by > reserveholders to adjust gradually the actual currency composition of its > reserves to any newbenchmark for those holdings. > > Engaging with potential major reserve issuers to help remove obstacles to > broader use oftheir currencies, if the authorities so desire. > > Considering mechanisms to facilitate the use of emerging market assets to > draw liquiditywith greater certainty to attenuate their demand for > hard-currency reserves. > > The report was issued months before a recent United Nations Economic and > Social Council called on nations to move away from the dollar as their > reserve currency. The U.N. based its advice on the adverse effects felt by > developing nations that were hit especially hard during the 2008-2009 U.S. > economic instability. > > President Obama, Treasury Secretary Geithner and Federal Reserve Chairman Ben > Bernanke have steadfastly maintained that the world does not need a new > reserve currency. > > To the contrary, Russia has predicted the world is a mere decade away from > that inevitability. > > “There is a need to make the IMF a true representative of the world’s leading > economies. It’s not there right now,” said Russian Finance Minister Alexei > Kudrin during a June 2009 economic forum, noting that China had a lower > representation quota than Switzerland or Belgium. >
