Questions grow over dollar’s future

Leading economists point to end for greenback as world reserve currency

  • By Phil Thornton
  • 06 Oct 2009
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The dollar’s era as the global reserve currency may be coming to an end, according to two economists – one a senior academic and the other a longstanding anti-poverty campaigner.

In article in the IMF's magazine Finance & Development published this month, Cohen said the dollar’s prospects had got dimmer but stressed that those of its main rivals – the euro, yen and Chinese yuan – appeared little better.

"A more fragmented currency system seems in the offing, with much competition and no money clearly dominant,” he said, adding that the economic and political impacts could be “considerable”.

He warned that without some form of leadership, global monetary relations would at risk of instability or worse. But he said that a more fragmented system would not necessarily be a “bad thing”.

“As the supplier of the world’s most popular currency, the US is in the position of a monopolist that has grown complacent abusing its exorbitant privilege,” he said.

Ann Pettifor, who parodied the IMF’s 2003 annual economic forecast with her own “real” World Economic Outlook that predicted a rich world debt crisis, said only radical reform of the financial architecture would prevent another financial crisis. But she dismissed the idea of using the IMF’s currency, the Special Depositary Receipt (SDR), saying that the Fund has been “captured” by the Group of Eight rich nations.

“We have to end the role of the US dollar as the global reserve currency,” she told Emerging Markets. “It is a large injustice that poor countries are obliged to hold Treasury bills.

"We need a new framework but I am not sure if SDRs can play that role. We need a new debate. It can’t happen overnight but Istanbul is a good place to start thinking about it.”

“I’m not sure that’s a role for the IMF but perhaps for the Bank for International Settlements,” she said. “Keynes’s big idea was for an independent global central bank to facilitate trade and act as a global clearing bank.”

She said the new central bank could accumulate reserves from surplus countries and use those to correct imbalances with deficit countries. “It needs a bank that is seen to be independent. The IMF is seen to be captured by the G8,” she said.

Her comments echo recommendations by a United Nations commissions into monetary reform chaired by Nobel laureate Joseph Stiglitz for an “orderly transition” from the dollar-based system.

“It is peculiar that we would still have this dollar system when we are so globalised,” Stiglitz told Emerging Markets. “This highlights the need for a new global reserve system to replace the dollar-based system.”

  • By Phil Thornton
  • 06 Oct 2009

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
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2 JPMorgan 230,914.50 1036 8.11%
3 Bank of America Merrill Lynch 221,389.46 762 7.78%
4 Goldman Sachs 171,499.26 554 6.03%
5 Barclays 169,046.60 646 5.94%

Bookrunners of All Syndicated Loans EMEA

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1 HSBC 27,039.93 106 7.36%
2 Deutsche Bank 25,125.19 81 6.84%
3 Bank of America Merrill Lynch 23,128.33 61 6.29%
4 BNP Paribas 19,315.94 110 5.26%
5 Credit Agricole CIB 18,706.93 106 5.09%

Bookrunners of all EMEA ECM Issuance

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1 JPMorgan 13,488.13 59 8.47%
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3 UBS 11,302.86 45 7.09%
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5 Goldman Sachs 10,434.21 54 6.55%