BEIJING,
Nov. 3 (Xinhua) -- The latest news regarding the eurozone's two-year-long debt
crisis has overshadowed discussions on reshuffling the dollar-based global
monetary system, although China has called for more efforts to reform the
system.
President Hu
Jintao once again suggested accelerating the reform of the international
monetary and financial system, a topic on the initial agenda of the ongoing G20
summit, in talks ahead of the meeting.
Despite an
ongoing debate regarding the super-sovereign Special Drawing Rights (SDR),
which were designed to augment international liquidity by supplementing
standard reserve currencies, experts are convinced that a crisis-resilient
global monetary system should rely on a basket of currencies rather than a
single currency.
DOORS OPEN
FOR CHANGE
French
President Nicolas Sarkozy, who is presiding over the Nov. 3-4 G20 meeting in
Cannes, has not been the first person to prompt a fundamental rethink of the
global monetary system. But his voice has echoed a wider yearning for change,
which may indicate that global monetary reform is more likely, analysts said.
Criticism
of a "hegemonic dollar" has not been new, but explicit requests for a
new global monetary system have been relatively scarce, said Li Jianjun, an
analyst with the state-owned Bank of China.
However,
since the global financial meltdown in 2008, the idea has gained momentum.
Calls for international monetary reform have come not only from once-peripheral
emerging economies, but also from long-term U.S. allies in Europe like France
and Germany, Li said.
Many have
started to recognize the problems that have emerged from using a single
dominant currency in global markets.
The deep
root of the current financial crisis lies in the dollar standard, said Zuo
Xiaolei, chief economist at Galaxy Securities.
The real
purchasing power of the greenback vanished with the breakup of the Bretton
Woods regime, which pegged the dollar to gold and all other currencies to the
dollar, Zuo said.
Yet under
the dollar standard, investors were eventually kidnapped by U.S. Treasuries,
which served as a "final alternative" for any other investment
vehicle, Zuo said.
In
addition, Li pointed out that market confidence in the dollar has been
unraveling, as the world's largest economy has been stuck with a debt crisis
and stagnant growth.
"The
world is now loath to see the dominance of the dollar, which opens doors for
change," Li said.
SDR UNDER
DEBATE
Although
economists are still largely at odds concerning the SDR's possible role, many
have agreed that a future international currency system should be built on a
basket of currencies, including the dollar, the euro, the yen, the sterling and
the yuan.
They have
unanimously ruled out the possibility of returning to the gold standard, and
many say other currencies like the euro and the yuan are not strong enough to
overtake the dollar's key role.
A real
debate is heating up over the super-sovereign SDR as a possible alternative.
Some
economists believe the SDR, created by the International Monetary Fund, could
become an ideal global reserve currency to eliminate the word's reliance on the
dollar, while others have deemed it infeasible for now.
Nobel Prize
laureate Robert Mundell, known as the "father of the euro," said
Monday in Beijing that the SDR will play a significant role in the post-crisis
global monetary system.
He also
backed Sarkozy's proposal to include the yuan in the SDR basket, which now
includes four currencies: the dollar, the euro, the sterling and the yen.
The
inclusion of the yuan would better reflect the new realities of global
economics, Mundell said.
Ba Shusong,
an economist with the Development Research Center under China's State Council,
said the role of the SDR should be strengthened to create diversity and
reestablish global financial order.
However,
others have been pessimistic about the super-national currency and do not see
much need for China to join the SDR.
"The
crux of issuing a super-sovereign currency is determining who gets the final
say. Both issuance and allocation involve a lot of political give-and-take.
Without seeing great benefits, countries will have little incentive to take the
onus," Li said
The
expansion of the SDR will not solve the fundamental problems in the current
monetary system, said Cao Tong, deputy governor of Citic Bank.
China
should focus on its own business and not worry about the entry, nor alter its
own schedule regarding yuan reform, Cao said.
China's
former central bank governor Zhou Xiaochuan said in early September that China
is in no hurry to have the yuan added to the SDR basket.
"Chinese
currency will become more powerful as the country's economy grows stronger.
Sooner or later, the yuan will be added to the SDR," Zhou said.
YUAN REFORM
PROGRESS
China has
pledged to increase the yuan's flexibility, while stressing that exchange rate
policies will be reformed in a gradual and controlled manner and the currency's
basic stability will be maintained.
To push
forward the internationalization of its currency, the Chinese government has
encouraged the use of the yuan in cross-border trade and investment settlement.
China is
still in the process of signing a yuan-denominated trade settlement agreement
with the Association of Southeast Asian Nations (ASEAN) , Jin Qi, assistant to
the central bank's governor, said in late October.
The
government first allowed trials of cross-border trade settlement in yuan in
some Chinese cities in July 2009. Hong Kong, Macao and ASEAN were chosen as
trial areas.
China's
yuan settlement in cross-border trade surged to 957.57 billion yuan (149.62
billion U.S. dollars) in the first half of 2011, 13 times more than that of the
same period last year, according to statistics released by the central bank.
The country
also approved foreign direct investment in yuan legally obtained overseas on
Oct. 14. The move was aimed at further boosting cross-border use of the yuan,
as well as supporting the yuan market in Hong Kong, the central bank said.
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