UNCTAD calls for movement away from dollar

RTT news The role of the U.S. dollar as the main reserve currency should be given to a new global currency, overseen by a new global bank, the Geneva-based UN Conference on Trade and Development said on Monday.

According to the UN body, the dollar has significantly lost its value and a country like the United States that has current account deficit is under no obligation to adjust to growing unbalance in the current account.

“The current international monetary system, with flexible exchange rates between the major currencies, the dollar as the main international reserve currency, and free international capital flows, has failed to achieve the smooth adjustment of payments imbalances,” the UNCTAD said in its Trade and Development Report 2009.

"A viable solution to the exchange-rate problem would be a system of managed flexible exchange rates targeting a rate that is consistent with a sustainable current-account position, which is preferable to any 'corner solution.' But since the exchange rate is a variable that involves more than one currency, there is a much better chance of achieving a stable pattern of exchange rates in a multilaterally agreed framework for exchange-rate management,"

"An economy whose currency is used as a reserve currency is not under the same obligation as others to make the necessary macroeconomic or exchange-rate adjustments for avoiding continuing current account deficits. Thus, the dominance of the dollar as the main means of international payments also played an important role in the build-up of the global imbalances in the run-up to the financial crisis."

Just when you think there will be some rally in the dollar. You get the anti-dollar reserve forces stepping up and announcing the dollar reserve system is dead and should be replaced. The reaction was swift. There is truth in many of the comments in the UNCTAD report, but there is not a viable solution or alternative at this point to the dollar system. The recommendation is diversity of reserves. This is going on right now. The market gets spooked and we have to deal with the fall-out.