March 11th, 2011 04:06 pm
“There is no risk of the SDR playing that role. The SDR is not a currency; it is a unit of account and it can’t provide the role that many people would aspire to it, and there is no risk of that happening,” Geithner said.
SDRs, created by the IMF in 1968, were intended as a device for settling international accounts without having to rely on the dollar or gold. Their value reflects the price of the dollar, Japanese yen, British pound and the euro. They are not used in any regular commercial transactions.
The idea of giving SDRs a heightened role in the global monetary system has been floating around global councils for the past year. The 2007-2009 financial crisis raised concerns among some US creditors, including China, about the potential riskiness of US assets.
China suggested in March last year that some kind of global currency might replace the dollar as the world’s premier reserve currency.
A year ago, Geithner briefly roiled currency markets when he said the United States would be “quite open” to a Chinese proposal for increasing the use of SDRs. Markets settled down when he predicted the dollar’s reserve role would be unchanged.
On Wednesday, he left no such opening for the SDRs’ potential.
“The dollar does play this unique role in the global financial system. I think that’s likely to continue,” Geithner said, adding that the United States had to pursue “responsible economic policies” to sustain confidence in the dollar.
Some analysts have argued for planning for a more multipolar financial system to reflect the rise of emerging-market economies like China and a diminution of the United States’s global dominance.
C. Fred Bergsten, an influential economist at the Peterson Institute for International Economics in Washington, has argued that the dollar’s preeminent role has become a burden for the United States.
“It is time for the US to anticipate, and begin to build, an era in which there will be several global currencies to rival its own,” he wrote in the Financial Times in February.
Bergsten suggested that other countries resent the dominance of the dollar, which is used among other things for settling oil transactions throughout the world.
“Seen from abroad, the dollar’s role provides automatic financing for US external imbalances and enables it to live beyond its means,” Bergsten said.
Emerging-market countries have expressed support for a greater role for SDRs or some other alternative to the dollar in hope that it might help them avoid the painful experience suffered by some during the financial crisis when credit markets froze and liquidity was hard to come by.
One possibility that the IMF is exploring is creating a precautionary short-term credit line that would be available to countries facing liquidity pressures during a crisis.
The IMF concept would be similar to currency swap lines the US Federal Reserve set up with other central banks during the financial crisis to ensure an ample supply of dollars around the globe.
On Monday, the IMF’s first deputy managing director, John Lipsky, told a Washington conference that a proposal for setting a credit line could be explored as part of Group of 20 rich and emerging-market countries’ 2011 agenda.
http://arabnews.com/economy/article311660.ece
WASHINGTON: The US dollar will continue to be the world’s key reserve currency and won’t be toppled by the Special Drawing Rights issued by the International Monetary Fund, Treasury Secretary Timothy Geithner said.
Testifying before a House of Representatives subcommittee, Geithner was dismissive when asked about the possibility the dollar could be supplanted by SDRs.“There is no risk of the SDR playing that role. The SDR is not a currency; it is a unit of account and it can’t provide the role that many people would aspire to it, and there is no risk of that happening,” Geithner said.
SDRs, created by the IMF in 1968, were intended as a device for settling international accounts without having to rely on the dollar or gold. Their value reflects the price of the dollar, Japanese yen, British pound and the euro. They are not used in any regular commercial transactions.
The idea of giving SDRs a heightened role in the global monetary system has been floating around global councils for the past year. The 2007-2009 financial crisis raised concerns among some US creditors, including China, about the potential riskiness of US assets.
China suggested in March last year that some kind of global currency might replace the dollar as the world’s premier reserve currency.
A year ago, Geithner briefly roiled currency markets when he said the United States would be “quite open” to a Chinese proposal for increasing the use of SDRs. Markets settled down when he predicted the dollar’s reserve role would be unchanged.
On Wednesday, he left no such opening for the SDRs’ potential.
“The dollar does play this unique role in the global financial system. I think that’s likely to continue,” Geithner said, adding that the United States had to pursue “responsible economic policies” to sustain confidence in the dollar.
Some analysts have argued for planning for a more multipolar financial system to reflect the rise of emerging-market economies like China and a diminution of the United States’s global dominance.
C. Fred Bergsten, an influential economist at the Peterson Institute for International Economics in Washington, has argued that the dollar’s preeminent role has become a burden for the United States.
“It is time for the US to anticipate, and begin to build, an era in which there will be several global currencies to rival its own,” he wrote in the Financial Times in February.
Bergsten suggested that other countries resent the dominance of the dollar, which is used among other things for settling oil transactions throughout the world.
“Seen from abroad, the dollar’s role provides automatic financing for US external imbalances and enables it to live beyond its means,” Bergsten said.
Emerging-market countries have expressed support for a greater role for SDRs or some other alternative to the dollar in hope that it might help them avoid the painful experience suffered by some during the financial crisis when credit markets froze and liquidity was hard to come by.
One possibility that the IMF is exploring is creating a precautionary short-term credit line that would be available to countries facing liquidity pressures during a crisis.
The IMF concept would be similar to currency swap lines the US Federal Reserve set up with other central banks during the financial crisis to ensure an ample supply of dollars around the globe.
On Monday, the IMF’s first deputy managing director, John Lipsky, told a Washington conference that a proposal for setting a credit line could be explored as part of Group of 20 rich and emerging-market countries’ 2011 agenda.
http://arabnews.com/economy/article311660.ece
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