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09 September, 2009

New Global Currency

UN Says New Currency Is Needed to Fix Broken 'Confidence Game'

The dollar's role in international trade should be reduced by establishing a new currency to protect emerging markets from the "confidence game" of financial speculation, the United Nations said.

UN countries should agree on the creation of a global reserve bank to issue the currency and to monitor the national exchange rates of its members, the Geneva-based UN Conference on Trade and Development said today in a report.

China, India, Brazil and Russia this year called for a replacement to the dollar as the main reserve currency after the financial crisis sparked by the collapse of the U.S. mortgage market led to the worst global recession since WWII. China, the world's largest holder of dollar reserves, said a supranational currency such as the International Monetary Fund's special drawing rights, or SDR's, may add stability.

"There's a much better chance of achieving a stable pattern of exchange rates in a multilaterally-agreed framework for exchange-rate management," Heiner Flassbeck, co-author of the report and a UNCTAD director, said in an interview from Geneva. "An initiative equivalent to Bretton Woods or the European Monetary System is needed." The 1944 Bretton Woods agreement created the modern global economic system and institutions including the IMF and World Bank.

While it would be desirable to strengthen SDR's, a unit of account based on a basket of currencies, it wouldn't be enough to aid emerging markets most in need of liquidity, said Flassbeck, a former German deputy finance minister who worked in 1997-1998 with then U.S. Deputy Treasury Secretary Lawrence Summers to contain the Asian financial crisis.

The 45-year old UN group, run by former World Trade Organization chief Supachai Panitchpakdi "promotes integration of developing countries in the world economy," according to its Web site.


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