UN economists warn that dollar is in for a hard landing next year
By Harvey Morris at the United Nations
Published: December 1 2008 02:00 | Last updated: December 1 2008 02:00
The current strength of the dollar is temporary and the US currency risks a
hard landing in 2009, according to a team of United Nations economists who
foresaw a year ago that a US downturn would bring the global economy to a near
standstill.
In their annual report on the world economy published today, the economists say
the dollar's sharp rebound this autumn has been driven mainly by a flight to
the safety of the international reserve currency as the financial crisis spread
beyond the US.
The overall trend remains a downward one, however, reflecting perceptions that
the US debt position is approaching unsustainable levels. An accelerated fall
of the dollar could bring new turmoil to financial markets. "Investors might
renew their flight to safety, though this time away from dollar-denominated
assets, thereby forcing the US economy into a hard landing and pulling the
global economy into a deeper recession," the report says.
Publication of the annual survey by the UN's Department of Economic and Social
Affairs, its trade organisation Unctad and UN regional bodies, was brought
forward by a month in the light of the financial crisis. It was launched in
Doha to coincide with the UN-sponsored development financing conference in the
Qatari capital.
The UN team says that, as the financial crisis spread beyond the US, there has
been a massive shift of global financial assets into US Treasury bills, driving
their yields almost to zero and pushing the dollar sharply higher. But at the
same time the US's external debt has risen to new heights that could provoke a
dollar collapse.
The report recommends reform of the international reserve system away from
almost exclusive reliance on the dollar and towards a globally backed
multi-currency system.
Rob Vos, a Dutch economist who heads the UN's policy and analysis division and
who is responsible for the annual economic review, said the global economic
pain could be eased if governments co-ordinated a spate of stimulus packages
that were already under way.
"There has been a sea change in attitudes in favour of intervention and
concerted action," he told the Financial Times. He welcomed statements from US
president-elect Barack Obama's transition team in support of spending on
infrastructure.
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