UN panel proposes new global reserve
A UN panel of economists on Friday proposed a new global currency reserve that would take over the dollar-based system used for decades by international banks.
The proposal came on the heels of the controversial call by China's central bank governor, Zhou Xiaochuan, to create a new world currency reserve to replace the dollar as part of a sweeping overhaul of global finance, which is suffering its worst crisis since the 1930s.
China and many developing countries blame the crisis on US mishandling of overextended mortgage loans and investments in them.
"A new global reserve system … 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 a document released after a three-day conference at UN headquarters in New York.
Earlier in the week, the US said it was open to enlarging the International Monetary Fund's currency reserves, but insisted that the dollar would remain "the world's dominant reserve currency".
The call comes just days before the Group of 20 largest economies are to meet in London to chart a way out of the global recession.
The UN panel said a new global reserve system would be "feasible, non-inflationary and could be easily implemented". It would help lessen the difficulties now caused by unbalanced adjustments between surplus and deficit countries.
The 22-member panel is led by Nobel economics laureate Joseph Stiglitz, a frequent critic of US fiscal policy.
"The nature of this crisis has opened up opportunities for change that I think would not have been conceivable even a few months ago," Stiglitz said last week.
The panel recommended that overcoming the financial crisis required the co-operation of rich and poor nations to take strong and effective action to stimulate their economies.
Stiglitz said there was a growing consensus among UN members that the dollar-based financial system was problematic. But he warned that the idea of a new global reserve was still a concept that panellists were debating.
The current system was "relatively volatile, deflationary, unstable and [had] inequity associated with it".
Stiglitz added: "Developing countries are lending the US trillions of dollars at almost zero interest rates when they have huge needs themselves. It's indicative of the nature of the problem. It's a net transfer, in a sense, to the US, a form of foreign aid."
The UN General Assembly established the panel of economists last year to deal with the widening economic and financial crisis. The panel believes the creation of a new global reserve would help poor countries through an improved credit system.