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U.S. Dollar Still Under Attack

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Tuesday, 30 Jun 2009 01:27 PM Current | Bio | Archive

Last Friday, the People's Bank of China released its annual financial stability report. It stated it would push for the international community to reduce its over-reliance on a small number of reserve currencies and added that it was a serious defect that the international monetary system should be dominated by one currency and called for closer supervision of those countries that issue the main reserve currencies.

It also noted that the International Monetary Fund (IM) should be entrusted with managing a portion of its member countries' foreign currency reserves.

Lately, China and Russia have not been the only ones to comment on this issue. Last Thursday, Indonesia's finance minister Sri Mulyani Indrawati said: "Depending on one global currency is definitely not healthy. … With the new emergence of players, naturally there should be a composition of basket of global currencies or major currencies globally that will give more what we call rational price or risk of this currency."

Regarding diversification, she argued: "All the countries who maintain and own some reserves, definitely they are going to make sure that their reserves will be put in a quite diverse portfolio."

Over the weekend, similar comments have also come out of the annual Bank for International Settlements (BIS) meeting in Basel, Switzerland. Argentina's central bank governor Martin Redrado noted that "we are looking at a world in which the U.S. dollar will continue to be the leading currency, but it will be a much more shared approach."

Philippine central bank governor Amando Tetangco argued: "For emerging central banks to shift out of the U.S. dollar, it has always been an option and this has happened to some extent in the form of diversification into foreign currencies. ... This process will inevitably continue."

So, while it is clear the central banks are certainly not trying to talk the dollar down as they have stepped down from their earlier self-defeating policies, it is also clear that their views on what needs to be done have not changed.

In its just released yearly Financial Stability Report, the People's Bank of China makes the following extremely important statement: "When a national currency becomes the global price-setting currency for primary products, the trade settlement currency and the reserve currency, that national currency has great difficulty attending to both domestic monetary policy goals and the reserve currency needs of various countries. And the economic development model of debt-based consumption is most difficult to sustain."

In clear English, China and others remain as concerned as ever about being overly concentrated in the dollar.

Arab Monetary Fund's Director General, Jassem Al-Mannai said: "You have China, Russia proposing we should think about a more international reserve currency other than the U.S. dollar … America, through this crisis, accumulated huge debts. It's a heavy burden on the U.S. dollar."

The IMF's chief economist Olivier Blanchard claimed that, "For the United States, it is absolutely no question that a sustained recovery has to come from a large increase in exports (which is not on the horizon, at least, not for the moment), and that this may require fairly substantial adjustments in the U.S. dollar."

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Last Friday, the People's Bank of China released its annual financial stability report. It stated it would push for the international community to reduce its over-reliance on a small number of reserve currencies and added that it was a serious defect that the international...
dollar
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2009-27-30
Tuesday, 30 Jun 2009 01:27 PM
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