Hedge fund legend George Soros says a new currency system is needed, with the IMF’s special drawing right (SDR) at its center, in place of the U.S. dollar.
“I believe that basically the system is broken and needs to be reconstituted,” Soros told the Financial Times. “We cannot afford to have the kind of chronic and mounting imbalances in international finance.”
So what’s the answer? “The special drawing rights do give you the makings of a system,” Soros says.
“I think it’s ill-considered on the part of the United States to resist the wider use of special drawing rights. They could be very, very useful now when you have a global shortfall of demand.”
SDRs already have been used in a $250 billion bond issue, Soros points out. “That’s a very, very useful step.”
Soros also says that the recent surge of bank profits owes almost entirely to government aid, so the banks need to be regulated more closely.
“Basically you’ve now given an implicit guarantee to the banks that are too big to fail, and you have to then regulate them in order to ensure that the guarantee is not invoked.”
Not everyone is so keen on the SDR.
Phil Levy, a resident scholar at the American Enterprise Institute, writes of some of the difficulties in Foreign Policy journal.
“It's not widely traded; there are no deep SDR capital markets; nor are there any special guarantees about its prospects as a store of value,” he explains.
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