from ZeroHedge Website
In the past we have discussed at length the inevitable demise of the USD as the world's reserve currency noting that nothing lasts forever.
However, when former World Bank chief economist Justin Yifu Lin warns that,
...we suspect the world will begin to listen (especially the Chinese. Lin, now - notably - an adviser to the Chinese government, concludes that internationalizing the Chinese currency is not the answer (preferring a basket approach) but ominously concludes,
The infamous chart that shows nothing lasts forever... Nothing lasts forever... (especially in light of China's earlier comments) Via China Daily.
The World Bank's former chief economist wants to replace the US dollar with a single global super-currency, saying it will create a more stable global financial system.
Lin, now a professor at Peking University and a leading adviser to the Chinese government, said expanding the basket of major reserve currencies - the dollar, the euro, the Japanese yen and pound sterling - will not address the consequences of a financial crisis.
Internationalizing the Chinese currency is not the answer, either, he said.
The concept of a global "super currency" tied to a basket of currencies has been periodically discussed by world leaders as well as endorsed by 2001 Nobel Memorial Prize-winner Joseph Stiglitz.
A super currency could also be tied to a single currency, but the interconnectedness of world financial markets and concerns about the volatility that can occur as a result of the system being tied to one currency have made this idea less popular.
Arguments in favor of a global currency resurfaced during October's US budget impasse, which forced the government to shut down (as we noted here).
The piece argued that creating a new international reserve currency to replace reliance on the greenback, would prevent government gridlock in Washington from affecting the rest of the world.
In March 2009, China's central bank governor, Zhou Xiaochuan, called for the creation of a new "super-sovereign reserve currency" to replace the dollar.
In a paper published on the People's Bank of China's website, Zhou said an international reserve currency "disconnected from individual nations" and "able to remain stable in the long run" would benefit the global financial system more than current reliance on the dollar.
Of course, as we are seeing now, it's not just the Chinese that are concerned...
On that note, David Bloom, global head of FX research at HSBC, said US monetary policy change,
Chen Wenling, chief economist at the China Center for International Economic Exchanges, a government think-tank, said,
Bloom and Chen both said China needs to play a more important role in global financial governance.
But Bloom said it is difficult for international financial organizations to reach a consistent conclusion on how to improve the foreign exchange system. He said the renminbi is predicted to be stronger this year, even against an appreciating US dollar, and internationalization of China's currency will accelerate when the government decides to further open the capital market.
Of course implementation will be painful...
Pierre Defraigne, executive director of the Madariaga College of Europe Foundation in Brussels, said of Lin's infrastructure proposal,
As we noted previously, the muddle-through is over and there is no painless solution left...
Michal Krol, a researcher at the Brussels-based European Center for International Political Economy, said,