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The World Starts to Devalue the Dollar

Below is an article from Australia's Business Day. It appears that right on the heals of China calling for an end of the dollar as the world's reserve currency, the United Nations is now following suit.

This, just before a meeting of the G20. Should make for some fireworks. If the dollar is dumped as the reserve currency that will throw a major wrench in the government's plan to debase the dollar to inflate us out of our massively growing debt.

Could this be why the Obama administration is now saying there will not be any middle class tax cuts as promised during the campaign (from a press release by Peter Orszag, Office of Management & Budget Director)? Are we trying to demonstrate to the world our fiscal prudence?

I don't think this will get any traction, but it bears watching.

Mark

UN proposes new global currency reserve

March 28, 2009

A United Nations panel of economists has proposed a new global currency reserve that would take over the US dollar-based system used for decades by international banks.

The proposal comes on the heels of the controversial call by China's central bank governor, Zhou Xiaochuan, to create a new world currency reserve to replace the US dollar as part of a sweeping overhaul of global finance, which is suffering its worst crisis since the Great Depression of the 1930s.

China and many developing countries blame the crisis on US mishandling of overextended mortgage loans and investments in them.

"A new global reserve system… with regular or cyclically adjusted emissions calibrated to the size of reserve accumulations, could contribute to global stability, economic strength and global equity," the panel said in a document released in New York.

The call was issued at the end of a three-day conference at UN headquarters in New York on Friday.

Earlier this week, the US said it was open to enlarging the International Monetary Fund's (IMF) currency reserves, but insisted the dollar would remain "the world's dominant reserve currency".

The call comes just days before the world's 20 largest economies (G20) were to meet in London to chart a way out of the global recession.

The UN panel said a new global reserve would be "feasible, non- inflationary and could be easily implemented". It said it would help lessen the difficulties now caused by unbalanced adjustments between surplus and deficit countries.

The 22-member panel is headed by Nobel Economics Prize laureate Joseph Stiglitz, a frequent critic of past US fiscal policy.

"The nature of this crisis has opened up opportunities for change that I think would not have been conceivable even a few months ago," Stiglitz said on Thursday.

The panel made several recommendations to deal with the financial crisis, which it said requires the cooperation of rich and poor nations together to take strong and effective actions to stimulate their economies.

Stiglitz said there has been a growing consensus among UN members that the US dollar-based financial system is problematic. But he warned that the idea of a new global reserve is still a concept that panelists are debating.

He said the current system was "relatively volatile, deflationary, unstable and (had) inequity associated with it".

"Developing countries are lending the United States trillions dollars at almost zero interest rates when they have huge needs themselves," Stiglitz said. "It's indicative of the nature of the problem. It's a net transfer, in a sense, to the US, a form of foreign aid."

The panel, known as the Commission of Experts on Reform of International Finance and Economic Structures, was established by the UN General Assembly last year to deal with the widening economic and financial crisis.

The panel believes the creation of a new global reserve would help poor countries through an improved credit system, built on a system of special drawing rights (SDRs) set up by the International Monetary Fund after World War II.

China's call for a replacement of the US dollar has made the UN proposal for a new currency reserve stronger. Some panelists suggested the SDRs could be used as a new standard of a global reserve currency.