"The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency," the U.N. World Economic and Social Survey 2010 said.Similar pronouncements were made in March 2009 and again in September 2009, so it's not like this is anything new out of the UN. I'll say now what I said then: if the US dollar loses its status as default world reserve currency, then we're done economically. It's over. I do believe we're in terrible trouble of deflation right now, but having said that another major economic event will force the Fed to print money like it's going out of style, and enough of that could break the bank down the road.
The report says that developing countries have been hit by the U.S. dollar's loss of value in recent years.
"Motivated in part by needs for self-insurance against volatility in commodity markets and capital flows, many developing countries accumulated vast amounts of such (U.S. dollar) reserves during the 2000s," it said.
The report supports replacing the dollar with the International Monetary Fund's special drawing rights (SDRs), an international reserve asset that is used as a unit of payment on IMF loans and is made up of a basket of currencies.
"A new global reserve system could be created, one that no longer relies on the United States dollar as the single major reserve currency," the U.N. report said.
The report said a new reserve system "must not be based on a single currency or even multiple national currencies but instead, should permit the emission of international liquidity -- such as SDRs -- to create a more stable global financial system."
"Such emissions of international liquidity could also underpin the financing of investment in long-term sustainable development," it said.
Having said that, enough US currency reserves are being held out there to the point where ditching the dollar now ruins everyone. But that's why you're seeing countries slowly unwind their dollar positions. They know what's coming.
The dollar is the global reserve currency because oil is denominated in dollars. To change the petrodollar you'd need to do away with the global dependency on oil. It's also a good example of how the UN does not resemble anything like the "global government" of Beckian nightmares. Governments print money; it is one of the things that defines a government...like taxation.
ReplyDeleteYeah, I never said the UN was smart or even pragmatic, just that it suggested that relying on one currency as a global reserve was hurting all the other countries out there besides us.
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