UN panel mulls new global reserve system to solve financial crisis

[Naveed Yaseen]

UNITED NATIONS (March 27 2009): A UN expert panel led by US economist Joseph Stiglitz on Thursday made a strong pitch for a new global reserve system to replace the US dollar as the world reserve currency.

"A new global reserve system - what may be viewed as a greatly expanded SDR (Special Drawing Rights), with regular or cyclically adjusted emissions calibrated to the size of reserve accumulations, could contribute to global stability, economic strength and global equity," the panel said in one of several recommendations to tackle the global financial crisis.

"There is a growing consensus that there are problems with the dollar reserve system," Stiglitz told a press conference, pointing out that such a system was "relatively volatile, deflationary, unstable and (had) inequity associated with it."

The International Monetary Fund (IMF) created the SDR as an international reserve asset in 1969, but it is only used by governments and international institutions. "Developing countries are lending the United States trillions dollars at almost zero interest rates when they have huge needs themselves," Stiglitz noted. "Its indicative of the nature of the problem. Its a net transfer, in a sense, to the United States, a form of foreign aid."

This week, Chinas central bank chief Zhou Xiaochuan suggested the dollar could be replaced as a reserve currency by an IMF currency basket comprising dollars, euros, sterling and yen, which he said would not be easily influenced by individual countries.

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