UN Panel Welcomes Debate Over New Global Reserve Currency

Editors Note - For those keeping score… This makes it 3. Russia, China and now the UN have each announced  advocating a move to a global currency at the  upcoming  G20 conference.

The head of a United Nations expert panel discussing solutions to the financial crisis on Thursday welcomed the debate over a new global reserve currency and said it would be best managed by a brand new institution.

Just days ahead of the Group of 20 heads of state meeting in London, several key players have weighed in with solutions to resolve the current financial crisis and to prevent future recurrences. One of the most sensitive subjects is the creation of a new de facto global reserve currency to replace the U.S. dollar.

The debate has shot to the forefront as officials from Russia and China have spoken up, lending weight to the discussions. While the G20 meeting isn’t expected to address it directly, it’s a topic that will continue to be discussed over the longer term.

The U.N. panel’s report published last week said a new global reserve system would “contribute to economic stability and equity,” and would reduce the deflationary effects of the massive reserve accumulations that countries have found necessary to protect them against the high level of global instability.

The International Monetary Fund is often cited as the most obvious choice to run a global reserve system, as it already uses its own currency, known as special drawing rights, or SDRs, in its dealings with member countries.

Joseph Stiglitz, economist and head of the U.N. panel, said Thursday in a teleconference with journalists that, although the IMF might be the fastest route, there’s a stigma associated with it among some developing countries, and there’s also frustration with the way that SDRs are allocated.

“My own longer-term preference is to create a new institution to do this,” Stiglitz said. “That’s a trade-off. I would rather face up to these deeper questions and get the system right.”

via Article – WSJ.com.

Dollar Spirals Downward

The world’s biggest currency-trading firms say the dollar’s appeal as a haven amid the financial crisis all but evaporated.

The U.S. currency slid to a 13-year low against the yen today and had its biggest one-day decline versus the euro after the Federal Reserve reduced its target interest rate yesterday to a range of zero to 0.25 percent, the lowest among the world’s biggest economies. CMC Markets said today the currency’s prospects appear “ominous.” State Street Global markets said the dollar’s outlook has been “undermined.”

“The dollar has been under heavy downward pressure,” said Robert Minikin, a senior currency strategist in London at Standard Chartered Bank Plc. “This move is very well-justified and has a long way to run.” Standard Chartered is preparing to cut its dollar forecasts, Minikin said.

Yesterday’s rate cut brings the Fed’s target to below the Bank of Japan’s for the first time since January 1993. U.S. policy makers repeated plans to buy agency debt and mortgage- backed securities and said they will study buying Treasuries, a policy known as quantitative easing.

The dollar fell to 87.14 yen, the lowest since July 1995, before trading at 87.45 yen as of 3:51 p.m. in New York, from 89.05 yesterday. It depreciated to $1.4437 per euro from $1.4002 and traded at $1.4366, the weakest since Sept. 30.

‘Ominous’ Outlook

The dollar is likely to decline “longer term,” analysts including New York-based Ashraf Laidi at CMC Markets wrote in a report. “Prospects ahead appear particularly ominous for the world’s reserve currency once global economic stability starts to build up.”

via Bloomberg.com: News.

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