Dollar concerns lend impetus for new reserve currency

A leading economist claims that Moscow's proposal to ditch the dollar as the world's reserve currency will sink the world economy. It comes as Russia's Central Bank says it is pushing ahead with the plans.

The value of foreign states' dollar reserves is reeling after Washington's decision to print its way out of the crisis. This week the Governor of China's Central Bank followed the Russian President's call to replace dollars with Special Drawing Rights of the International Monetary Fund (IMF) as the main international reserve currency. The Russian Central Bank is already looking into the details, according to Deputy Chairman Aleksey Ulukayev.

“We've just started discussions on a new financial architecture and currency system. There's promise in the IMF’s currency instruments.”

Meanwhile Russia's pushing international reserve and trading currency status for the rouble. Finance Minister, Aleksey Kudrin says that in the former Soviet Union, it has already made it.

«90% of our exports to Belarus are already paid in Russian roubles. A host of neighbouring countries now use it to pay us.»

To halt stockpiling increasingly vulnerable paper may sound like good sense. But Professor Vasily Solodkov, Banking Institute Director at the Higher School of Economics, warns now is not the time.

“The largest consumer market in the world is the United States, so the recovery of the world economy very much depends on the US market. There's no actual support for the US dollar as a reserve curency, that's an objective fact. But if we try to artificially undermine the situation with a new currency, it could worsen the whole situation for all markets.”

The White House has mounted a defence at the top level. On Tuesday moves to ditch the dollar were slammed by the Treasury Secretary, the Chairman of the Federal Reserve and President Obama. Beijing now says its comments were misunderstood.