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IMF calls for Dollar alternative


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IMF calls for dollar alternative

By Ben Rooney, staff reporterFebruary 10, 2011: 4:37 PM ET

NEW YORK (CNNMoney) -- The International Monetary Fund issued a report Thursday on a possible replacement for the dollar as the world's reserve currency.

The IMF said Special Drawing Rights, or SDRs, could help stabilize the global financial system.

449Email Print SDRs represent potential claims on the currencies of IMF members. They were created by the IMF in 1969 and can be converted into whatever currency a borrower requires at exchange rates based on a weighted basket of international currencies. The IMF typically lends countries funds denominated in SDRs

While they are not a tangible currency, some economists argue that SDRs could be used as a less volatile alternative to the U.S. dollar.

Dominique Strauss-Kahn, managing director of the IMF, acknowledged there are some "technical hurdles" involved with SDRs, but he believes they could help correct global imbalances and shore up the global financial system.

"Over time, there may also be a role for the SDR to contribute to a more stable international monetary system," he said.

The goal is to have a reserve asset for central banks that better reflects the global economy since the dollar is vulnerable to swings in the domestic economy and changes in U.S. policy.

In addition to serving as a reserve currency, the IMF also proposed creating SDR-denominated bonds, which could reduce central banks' dependence on U.S. Treasuries. The Fund also suggested that certain assets, such as oil and gold, which are traded in U.S. dollars, could be priced using SDRs.

Oil prices usually go up when the dollar depreciates. Supporters say using SDRs to price oil on the global market could help prevent spikes in energy prices that often occur when the dollar weakens significantly.

The dollar alternatives

Fred Bergsten, director of the Peterson Institute for International Economics, said at a conference in Washington that IMF member nations should agree to create $2 trillion worth of SDRs over the next few years.

SDRs, he said, "will further diversify the system."

Dollar firms after starting 2011 weak

The dollar has been drifting lower so far this year as the global economy improves and investors regain their appetite for more risky assets such as stocks and commodities.

After rising above 81 in early January, the dollar index, which measures the U.S. currency against a basket of other international currencies, eased below 77 earlier this week.

However, the dollar was higher Thursday against the euro, pound and yen as disappointing corporate results weighed on stock prices following several days of gains on Wall Street. The rally in the commodities market also cooled, with the price of oil and metals backing off recent highs.

0:00 /4:40Bernanke vs. Ryan: Inflation wars

In addition, renewed concerns about the debt problems facing troubled European economies put pressure on the euro and supported the dollar. The yield on Portugal's benchmark bond rose to a record high Wednesday, and borrowing costs for Ireland, Spain and Greece remain elevated.

"The market is shedding risk, with equities and commodities weakening and the U.S. dollar broadly stronger" said Camilla Sutton, currency strategist at Scotia Capital.

Traders were also digesting comments from Federal Reserve chairman Ben Bernanke, who told Congress Wednesday that despite a strengthening economic recovery, the unemployment rate remains high while inflation is "still quite low."

Those remarks reaffirmed the view that "the Fed would be very slow to tighten policy given its dual mandate of price stability and employment," analysts at Sucden Financial wrote in a research report.

Bernanke also urged lawmakers to come up with a "credible plan" to bring down "unsustainable" federal budget deficits.

"We expect that the outlook for the U.S. fiscal position will weigh heavily on the U.S. dollar in the quarters ahead," said Sutton. In the near-term, however, she said "a strengthening growth profile" could help provide "a temporary period of dollar strength."

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Helicopter Barry...Is it REALLY necessary to quote the ENTIRE frickin article and THEN not to post ANYTHING else? I always give people a negative for that. It's just plain stupid.

This is so very true!! It happens all the time. Very nice article thanks for the post!

GO RV

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Thanks Raychel.

Although the article says what is most obvious, which is that the US Dollar is fiat currency that is causing severe volatility worldwide due to its heavy dependence on debt, it then confuses the issue by stating how the dollar is holding its own for now.

The suggestion that SDR's are the solution ties in nicely with what is happening with the IQD and the RV. IMO what is actually being said is the prelude to the RV by giving the primary reasons why it is needed, and NOW!

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Wow, I thought this guy might be a liberal BS'er, but here ya go

IMF Chief: Status Quo Could Sow Seeds of Next Crisis

Suzanne Presto | Washington, D.C. February 10, 2011

IMF: Global Economic Growth Slows

The head of the International Monetary Fund warns that another financial crisis could arise if the international monetary system is not reformed.

IMF chief Dominique Strauss-Kahn said that even though the global recovery is underway, the international monetary system still needs to be reformed.

"Global imbalances are back. Large and volatile capital flows, exchange rate pressures, rapidly growing excess reserves - all this is on the front burner once again. And, I do believe that left unresolved, these problems could even sow the seeds for the next crisis," said Strauss-Kahn.

Panelists, including Fred Bergsten, the director of the Peterson Institute for International Economics, discussed a movement toward developing regional entities that could work with the IMF to prevent future crises.

"I think it's fair to say that Europe's response to its current crisis will lead to the creation of a European Monetary Fund. It probably won't use those words to describe it, but if it walks like a dog, you know, call it a dog," said Bergsten.

Bergsten said the IMF's cooperation with Europe has been exemplary. And he added that Asia also is moving toward something akin to an Asian Monetary Fund, but at a slower pace.

Strauss-Kahn acknowledged that there has been "fair criticism" that the IMF failed to provide an early warning for the global financial crisis. In response, he said, the body has strengthened its surveillance system.

But he also defended the IMF, saying that when it does raise concerns, governments do not want to hear them because governments tend to think in the short term.

"In most cases, what we say is 'we see problems down the road,' but what is 'down the road' for the IMF is a century away on the political timeline," said Strauss-Kahn.

The IMF director also said unemployment levels remain an issue, despite the fact that the global economy is recovering. At present, he said, the United States, North Africa, Europe and elsewhere are dealing with high unemployment rates. But, Strauss-Kahn stated, this will shift in the long term.

"In 10 years or 15 years from now, the real problem of unemployment will be the tens of millions of young people coming [or] trying to come into the labor market in Asia and Latin America and part of the Middle East. So, of course, that's very far away, but we have to face this and to try to build a system that is able to address this kind of problem, too," said Strauss-Kahn.

The panel also discussed the role the IMF's own currency can play in stabilizing the world economy. The IMF's international reserve asset is called the SDR (Special Drawing Rights), and its value is based on a basket of four international currencies - the euro, Japanese yen, pound sterling and U.S. dollar. IMF officials theorize the SDR could facilitate diversification and reduce the impact of exchange rate volatility among major currencies.

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Wow.....this is not good.....we are screwed!!! The dollar will drop more and then thats how we will make a profit off the dinar....thats just great......

You may be right sir! but...."what if" you sir are invested in a brand new "basket" currency. Are you not the hero amongst your peers? Post RV the question becomes more of do you cash out or hang on?

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Diversify your investments, ESPECIALLY AFTER THE RV. (Dont just leave it all in USD)

YUAN is looking good for long term... How about the Canadian dollar??

REAL ESTATEbiggrin.gif , GREAT DISCOUNTS THESE DAYS IN EVERY STATE... LAND IS ALWAYS SAFE!! Well not Always wink.gif

GOOD LUCK TO YOU ALL!!

Does anyone have other plans, I am sure...? Please share!! Thanks!

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Seriously, folks, what does this mean? At the current rate the dollar is falling, what month does that put us in when it crashes completely? If it falls before the RV, I think you can say we are really screwed because dinar won't bring us up in dollars for what we will need to survive. So do you think the IMF will bring in the SDR's before the dollar tanks? or after? How do you think this will all play out? Don't mean to be overly paranoid, but this article makes me think we need to store up some food. Anyone else getting this vibe?

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Seriously, folks, what does this mean? At the current rate the dollar is falling, what month does that put us in when it crashes completely? If it falls before the RV, I think you can say we are really screwed because dinar won't bring us up in dollars for what we will need to survive. So do you think the IMF will bring in the SDR's before the dollar tanks? or after? How do you think this will all play out? Don't mean to be overly paranoid, but this article makes me think we need to store up some food. Anyone else getting this vibe?

I get the vibe that we "could" have a storm coming. But I also get the vibe that there is getting to be a lil more credibility in some of these "conspiracy "theories". Not that they are all out true, but not all wrong either. I have to believe that the "big guys" that set up the Fed and world banks could see that at some point the fractional banking system would have to reset, or go to another system entirely. Now I have wondered how the 'big guys' would let go of their strangle hold on the economy and had a hard time buying into a new currency system that just cut them out. Well this would possibly allow them a reset. They could possibly set the Fed system on a global stage with a "Global Reserve" or we could also do like the GET recording suggests and go with a resource backed system where as all monies are backed by a nations resources in which the ' big guys' have a huge holding in the currency of the potentially richest country in the world soon (Iraq) and the United States (which has not been using it's resources up) rather buying them from OPEC which is taking a heck of a blow right now with the Saudi reports and Egypt.

Either way it's gonna be somethin to watch. THIS IS MY THEORY. I'M SURE IT WILL HURT SOMEONE'S FEELINGS AND HOPE IT WILL SPARK SOME GOOD CONVERSATION. I'M IN NO WAY TRYING TO AGGRAVATE ANYONE RATHER HOPING SOMEONE COULD INTELLIGENTLY EITHER SUPPORT OR DEBUNK MY THINKING. (disclaimer)

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Obama met with Maliki and advised him that the best way to save a country is stimulus spending.

Remember that these will be "in-country" dinar and shouldn't really have any negative effect on RV. It's certainly not a bad thing that the IMF is being more vocal about stabilizing global economies.

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The FEDERAL reserve has already stated that UNLESS the US debt ceiling is dramatically lowered and we increase our GDP that it is only a matter of time before we begin to default on our Debt obligations. The Petro Dollar or US dollar is the international standard today thus keeping us afloat! If it is dropped as the monetary preference or global standard we as Americans ARE SCREWED.blink.gif

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Okay, maybe my previous stab at a positive spin wasn't even close. This does sound bad! Perhaps I should move to costa rica now or maybe even bush alaska. If waiting on the RV hasn't been nerve wracking by itself, waiting on the immenent collapse of the dollar is sickening.

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