World Money Revolution?

"Medvedev Talks Up Super Currency" (Moscow Times):

President Dmitry Medvedev called for a new world economic order, including the introduction of a new "super currency," on Tuesday as he prepared for a G20 summit in London, where Russia has been jockeying for a more prominent role.

Speaking at a summit of CIS finance ministers in Moscow and later at a meeting with German Chancellor Angela Merkel in Berlin, Medvedev reiterated the key points in Moscow's proposed revision of the world's financial system, including the creation of a new global currency to supplant the U.S. dollar.

"Many of our partners maintain the point of view that everything is fine in this area, that all that is needed is a slight strengthening of major worldwide currencies, including the dollar," he said in Moscow, Interfax reported. "We hold another point of view."

He called for the creation of a "new international currency system" and said the idea of the super currency that Russia had suggested was finding an audience among other countries.

"Many are now discussing a so-called super currency, a supranational currency," Medvedev said.

He repeated the proposal once again in Berlin, saying the global economy "cannot develop in the next 10 years if we do not create a new infrastructure, including new [currency] systems," Interfax reported.

Merkel agreed that a new world economic order was needed. "It is clear that decisions on the new financial architecture must be made," she said at a joint news conference with Medvedev late Tuesday, where they also discussed NATO and a gas dispute with Ukraine.

The Kremlin has persistently criticized the dollar's status as the dominant global reserve currency and has lowered its own dollar holdings in the last few years.

In a document released two weeks ago that contained suggestions for global economic reform that the Kremlin said it would pitch at the G20 summit, it called for the creation of a new reserve currency or using Special Drawing Rights, or SDRs, as a "superreserve currency accepted by the whole of the international community."

Although most political leaders, including U.S. President Barack Obama, dismissed the idea, it sparked international debate and found a powerful backer in China, which last week echoed the call for a global currency and less reliance on the dollar.

Finance Minister Alexei Kudrin said Tuesday that the Chinese yuan could become a global reserve currency in 15 years. (Story, page 7.)

"The Dollar isn't Going to Yield to the Yuan just Yet" (Bloomberg):

China’s idea of dumping the dollar as the world’s reserve currency has about as much appeal in today’s globalized economy as Esperanto.

It might be a good idea, but nobody’s ready to buy it.

China’s proposal isn’t about wobbly exchange rates. It’s about making a statement before this week’s Group of 20 summit. China, together with Russia and others, want to let Washington know that it is going to have to share the head table in what used to be an exclusive club.

China’s ascendancy was a fact before the financial crisis. Now its political clout is catching up with its economic might. But when it comes to currency, the dollar is still king, and will probably remain so for some time.

Think about it. Who seriously expects to see commodities -- from gold to cotton to oil -- priced in anything but greenbacks anytime soon? There have been times when Russia, Iran and Venezuela considered pricing crude in euros, but that idea evaporated for one simple reason: depreciating the dollar ends up harming those countries that hold them in reserve.

The first victim would be China, now the largest holder of U.S. treasuries -- about $740 billion-worth, more than a third of its entire foreign reserves.

The truth is you can’t dictate which reserve currency countries will use, any more than you can make people speak Esperanto, a universal language invented 112 years ago that still hasn’t taken off...

So far, no one has come with a good idea for an alternative to the dollar. China and Russia propose expanding the use of the International Monetary Fund’s Special Drawing Rights, a cumbersome vehicle whose value is set by a basket of currencies. Russia has added the idea of putting gold in the basket as a stabilizing element.

Dollar Defense

The IMF? Is that really the institution we want to manage complex international monetary politics? Critics have already questioned how the IMF would go about setting the value of the SDRs, and how it would resist political pressure to change the valuation.

For its part, the U.S. will obviously defend the dollar’s dominance as long as it can. Its status as the No. 1 currency means the U.S. doesn’t have to repay debts in foreign tender, keeping borrowing costs down. A weaker dollar would make it harder to sell the Treasuries the government needs to jump-start the economy.

This is strange: I find myself sort of agreeing with Medvedev and China.  I've come to suspect that having the world's reserve currency actually hurts us more than it helps.  For example, in the present case, I doubt that selling Treasuries to spend will jump-start the economy (though the economy will probably recover on its own, albeit weakly because of the increased burden of government); but a weaker dollar would jump-start the economy directly, by making US exports more competitive.  More generally, I think having the world's reserve currency is a little bit like having lots of oil: its a free lunch for the elite that fuels corruption and waste and does overall harm.

One thing's for sure: we'd be a lot better off right now if a dollar crash forced Obama to submit to the diktat of the IMF.

UPDATE: To clarify, I don't think Medvedev / China's plan is going to work.  But I wish it would.

Comments

[Bill Chapman]

Esperanto does not deserve to be dismissed in such a cavalier way. It has only a couple of million speakers but is used for all sorts of practical purposes. Take alook at www.esperanto.net

[pinnacle security]

Focusing too much on financial status will not do good.