China Sees Conspiracy in Global Reserve Currency

The topic of a reserve currency to replace the dollar never gets old, and the logic behind it is a bit fuzzy. First and foremost, why is the dollar the reserve currency of choice? Does America threaten to bombard any country that chooses to keep its reserves in euros, yen, Swiss francs, or gold, instead of adorable Benjamin Franklins? Let’s look at the landscape first.

The Financial Times published the article “The best alternative to a new global currency,” authored by Joseph Stiglitz, a recipient of the Nobel Prize in Economics in 2001. Mr. Stiglitz points out some issues, as follows:

Further, when crises occur in many countries simultaneously, as happened, for instance, during the 1998 east Asian crisis, IMF lending could be totally financed by new SDR issues in unlimited amounts. If and when the world economy recovered or boomed, SDR issues could then cease, or even be reabsorbed. Thus the IMF would have a greater role in creating official liquidity, in a way that curbed both recessionary and inflationary trends at different times.

Wait a second! New SDR issues in unlimited amounts? But isn’t the SDR designed to be a reserve quasi-currency that is created from members’ “existing” cash reserves? Or could the IMF become the official global money-printing machine that would save the globe from its missteps? Read the rest of the article here>>>