The UN Conference on Trade and Development (UNCTAD) released a report today calling for the creation of a new global reserve currency.
The UN also called the dollar-based system a “confidence game” of financial speculation.
The UN is calling for a new global reserve bank to manage the new currency.
Bloomberg quotes a co-author of the report and UNCTAD director:
“There’s a much better chance of achieving a stable pattern of exchange rates in a multilaterally-agreed framework for exchange-rate management,” Heiner Flassbeck, co-author of the report and a UNCTAD director, said in an interview from Geneva. “An initiative equivalent to Bretton Woods or the European Monetary System is needed.”
I have written previously about the possibility that the International Monetary Fund’s Special Drawing Rights currency (SDRs) could become the new reserve currency.
But Flessbeck says (as quoted in the above-linked Bloomberg article) that this would not go far enough:
While it would be desirable to strengthen SDRs, a unit of account based on a basket of currencies, it wouldn’t be enough to aid emerging markets most in need of liquidity, said Flassbeck…
Emerging-market countries are underrepresented at the IMF, hindering the effectiveness of enhanced SDR allocations, the UN said. An organization should be created to manage real exchange rates between countries measured by purchasing power and adjusted to inflation differentials and development levels, it said.
“The most important lesson of the global crisis is that financial markets don’t get prices right,” Flassbeck said. “Governments are being tempted by the resulting confidence game catering to financial-market participants who have shown they’re inept at assessing risk.”