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8 Sep, 2009 18:22

UN dollar to replace US dollar?

A new report from the United Nations recommends the role of the dollar as a reserve currency should be reduced. Instead, it proposes a new supranational currency.

The US economy is running an enormous deficit and is suffering from mass unemployment. This country seems to have no other option but to continue printing dollars, making the greenback cheaper – and making foreign held debt less valuable while US goods get a competitive bonus.

The dollar is the most widely used currency in the world, and this makes the global economy dependent on the policies of the Federal Reserve.

“With the US, it’s great if they have the world reserve currency, and everyone needs to buy US dollars to conduct their business,” financial expert Max Kaiser told RT. “And this is why countries like Russia and China and Brazil are trying to divorce themselves from the US, because it’s a completely toxic currency that’s just right for the counting fraud.”

“It supports an empire that’s just too lazy to compete,” he added.

The idea of a supranational currency, independent of sovereign states, is not a new one. But this is the first time an institution of such importance has made the proposal.

The United Nations says it wants to go back to the idea of Special Drawing Rights, or SDRs, and make it into a proper currency. The International Monetary Fund would then provide liquidity when and where it is needed.

“The IMF could act as a World Central Bank that steers the global money supply,”Detlef Kotte, an economist at UNCTAD, explains.

But more importantly, why do countries need to hold foreign exchange reserves? According to Kotte, they need to hold them largely in order to prevent speculative attacks on their currencies.

“If we established an exchange rate system that would guarantee more stable exchange rates, the need for foreign exchange reserves would be much reduced. Therefore, in our report, we focus very much on the reform of the international system to determine the exchange rates,” Detlef Kotte said, expanding on the idea of the UN proposal.

The idea would allow for a more united global financial policy, reducing the risk of crises like the one we are all in now, which has been widely blamed on the United States.

But, as economists point out, the dollar’s dominant role was formed over the past 15 years, and it will take decades to change that.

“There should be a single economic space which should be used as a source of growth for the rest of the world, as the US does now, for example,” Vladimir Osakovsky, the head of Strategy & Research at Unicredit Bank said. “It is possible, in the end. Eventually, we are moving in that direction. But it’s a very long-term task for global policy makers.”

Watch full interview with Vladimir Osakovsky

Meanwhile, global economies are reducing the proportion of dollars in their reserves. As for private investors, they move away from the dollar by moving into safe havens – such as commodities like gold, which has recently breached 1,000 dollars per ounce and could go even higher.