Russia unexpectedly supported George Soros’s idea to turn the drawing rights of the IMF into the world’s supercurrency. The idea is clear: the dollar is too risky to become the stronghold of the financial system. One should not forget who runs the show at the IMF.
Russia plans to ask the International Monetary Fund to study the possibility of creating the sub-national reserve currency. The plans also stipulate the diversification of the currency structure of reserves, operations of national banks and international financial organizations. Russia plans to set forth the suggestions to world leaders during the G20 summit.
“We believe that one should consider the role of the IMF in the process and decide whether measures should be taken to let SDR (Special Drawing Rights) become the globally recognized reserve currency,” the document runs.
The idea to replace the dollar as the world’s reserve currency with something else is not new. Many well-known scientists and financiers believe that SDR can become the new international currency. Now the suggestion has become one of the fundamental theories as far as the reforms of the global financial system are concerned.
US investor George Soros set out his views regarding the creation of the new money in the world. He wrote in one of his articles that the future of the International Monetary Fund and the World Bank depended on their handling of the problems of developing economies under the conditions of the financial crisis. The IMF does not have enough resources to support the developing states, Soros believes. In this connection he reminded of the existing mechanism of settlement with the use of Special Drawing Rights, SDR.
Andrei Gangan, an analyst with Calita-Finance, said that Special Drawing Rights represent the reserve asset, which the IMF created in 1969 as an instrument of payment between IMF members. The SDR cost is based on the basket of world’s basic currencies.
The specific weight of each currency in the SDR basket is based on the share of a country in international trade. The basket currently consists of 44 percent of the US dollar, 34 percent of the euro, 11 percent of the Japanese yen and 11 percent of the British pound.
“The US dollar, which presently plays the role of world’s major reserve currency, cannot keep its status anymore for a number of reasons. One of the most important one of them is connected with irresponsible crediting policies of the US Federal Reserve System, which serves as the dollar’s issuing center. The balance between the dollar holdings and the growth of the US economy was broken at the end of the 1980s. The money, which the Reserve System has been printing for over 20 years, is not ensured with the US GDP,” Mr. Gangan told Bigness.ru.
The macroeconomic indices, which determine the national currency stability, are rather weak as far as the dollar is concerned. The correlation between the national debt and the GDP makes up approximately 90 percent (it must not exceed 60 percent). The budget deficit of the USA will exceed the level of 12 percent this year with 0 or 3 percent being the norm.
“The structure of the world currency system, in which one and the same currency serves as both the national and the international reserve currency, has proved to be corrupt. When people purchase dollars, they accept the national risks of the US economy, which remains afloat due to international investors’ infinite faith in it. They still believe that the US economy is stable and solvent, and that the US dollar is still the international reserve currency,” Andrei Gangan said.
The Russian administration believes that it is incorrect to keep dollar reserves against the background of the uncontrollable and irresponsible financial policies.
“The suggestion to make SDR the new reserve currency in the world is an attempt to grade the sovereign national risks of certain national currencies. The introduction of SDR will most likely not solve the problem, nor will it restrict the influence of the United States on the international financial system. The States enjoy the largest number of votes at the IMF – 17.5 percent. Japan and Germany, the two next members, own only 6.3 and 5.53 percent of votes. To put it in a nutshell, the USA will keep the control over the issue of the new world currency anyway,” the analyst added.