In the wake of the G-20 Summit Seoul, calls have increased for a change to the current international currency system, in which the dollar is the central currency. France, the next chair of the G-20 Summit, said it would deal with the key currency issue together with China as an agenda item.

In its declaration Friday, the G-20 Summit Seoul said that in order to systemically shore up the world economy, leaders had agreed to search for ways to improve the international currency system, and that they looked forward to additional analysis and proposals next year. Immediately after the summit, besides France and China, Brazil and Russia went a step further in saying they would place their own currencies in a new currency basket.
On Nov. 8, World Bank President Robert Zoellick said, in a statement, “The G-20 should complement this growth recovery programme with a plan to build a co-operative monetary system that reflects emerging economic conditions. This new system is likely to need to involve the dollar, the euro, the yen, the pound and a renminbi that moves towards internationalisation and then an open capital account.” Zoellick went on to say, “The system should also consider employing gold as an international reference point of market expectations about inflation, deflation and future currency values.”
The world seems to have entered a period of competing claims about the international currency system.
Shin Je-yun, an official of the international operations office of the Ministry of Strategy and Finance, said, “A situation similar to the Bretton Woods negotiations of 1944 is developing,” where countries developed the fixed exchange rate system.
The main reason for this is that since the 2008 global financial crisis, the U.S. economy has faltered and this year, the dollar’s slide has accelerated.
In late 2008, when both developed and developing nations were hit by crisis, to early 2009, the dollar was stable and even strengthened. This year, however, with concerns growing that the U.S economy would once against slide into recession, the value of the dollar has fallen so far that it threatens to break its all-time low set in March 2008.
Against the weighted average of major currencies like the euro, yen and pound, the value of the dollar as of Nov. 5 was 70.98, a 37 percent drop from January 2002.
The ratio of the dollar in the international reserves of major countries dropped from over 70 percent in 2001 to 63 percent in 2008. New York University Professor Nouriel Roubini has warned that the age of the dollar could end not in decades, but in years.
Of currently traded currencies, the euro and the yuan are being discussed as alternative key currencies, but the possibility of their acceptance is not high, and going back to the gold standard is virtually impossible.
The Financial Times reported on Saturday that not only is gold production falling after peaking in the early 2000s, but its price is highly voluble, and it would likely cause deflation, making it an unsuitable alternative.
Among experts, the strongest alternative being discussed is the Special Drawing Right (SDR) of the IMF. The SDR is an imaginary currency created by the IMF in 1969 to express the investments of member states. The worth of the U.S. dollar (44 percent), euro (34 percent), Japanese yen (11 percent) and pound sterling (11 percent) are calculated using a weighted average, and member states could draw on these funds, marked in four currencies, in an emergency.
As World Bank President Zoellick stated, it is highly possible that these SDRs, with the yuan added to the mix, could replace the dollar as the key currency.
(Source: english.hani.co.kr)