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Is a New Global Reserve Currency the Answer to Relaunching Growth?
In March, China's Central Bank Governor Zhou Xiaochuan sparked controversy when he proposed that the International Monetary Fund create a new reserve currency - a proposal with enormous implications across Asia, which holds nearly US$ 4 trillion in foreign currency.
"I strongly supported the proposal made by Governor Zhou," said Yu Yongding, Senior Fellow, Institute of World Economics and Politics, Chinese Academy of Social Sciences (CASS), People's Republic of China and member of the Forum's Global Agenda Council on International Monetary Systems. However, panellists agreed that the creation of a new global currency to replace the dollar and other sovereign currencies was not politically viable.
The overwhelming problems facing the Asian and US economies are not based on currency doubts. "Don't kid yourself. This crisis is not about currency problems. This problem is about the failures of policies," said Stephen S. Roach, Chairman, Asia, Morgan Stanley, Hong Kong SAR. "We've had central banks that have just gone along for the ride, driven by ideologies, driven by politics." For the global financial system to steady itself, the US must increase exports and Asian economies, China's in particular, must do much more to reorient their growth away from external demand towards domestic consumption. "The most important thing for China is to speed up structural reform," agreed Yu.
When polled informally, participants preferred the yuan over the dollar as an investment but few believed it would replace the dollar as the global reserve. Among the panellists, only Oki Matsumoto, Founder and Chief Executive Officer of Japan's Monex Group, was mildly bullish on the dollar.
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