Chatter about a new global currency is overblown
There has been a lot of talk recently of a global currency in the near future. Robert Pozen does not see this happening. He believes SDRs have less potential than suggested by China. They could not become a viable global currency in their present form. You can read the article from the FT below:
At the US-China summit this week, Chinese officials raised concerns that the surging US budget deficit could undermine the value of China’s huge dollar holdings. These same concerns motivated the governor of the People’s Bank of China to suggest replacing the US dollar as the world’s reserve currency with special drawing rights issued by the International Monetary Fund. To be specific, he proposed that central banks be allowed to swap their dollar reserves for SDRs held in a substitution account by the IMF. SDRs represent a basket of four currencies – comprising 44 per cent US dollars, 34 per cent euros, 11 per cent yen and 11 per cent pound sterling.
However, SDRs are not a realistic alternative to US dollars as the global reserve currency because there are too few of them in circulation. For the same reason, swaps of US dollars for SDRs would have limited utility.
Monday, August 31, 2009 9:50 pm | 
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