Dollar Doom brewing ? India calls for new reserve currency
(snip)India Joins Russia, China in Questioning U.S. Dollar Dominance
By Mark Deen and Isabelle Mas
July 4 (Bloomberg) -- Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, said he is urging the government to diversify its $264.6 billion foreign-exchange reserves and hold fewer dollars.
“The major part of Indian reserves is in dollars -- that is something that’s a problem for us,” Tendulkar, chairman of the Prime Minister’s Economic Advisory Council, said in an interview yesterday in Aix-en-Provence, France, where he was attending an economic conference.
Singh is preparing to join leaders from the Group of Eight industrialized nations -- the U.S., Japan, Germany, Britain, France, Italy, Canada and Russia -- at a summit in Italy next week which is due to tackle the global economy. China and Brazil will also send representatives to the summit.
As the talks have neared, China and Russia have stepped up calls for a rethink of how global currency reserves are composed and managed, underlining a power shift to emerging markets from the developed nations that spawned the financial crisis.
“There should be a system to maintain the stability of the major reserve currencies,” Former Chinese Vice Premier Zeng Peiyan said in a speech in Beijing yesterday, highlighting China’s concerns about a global financial system dominated by the dollar.
Fiscal and current-account deficits must be supervised as “your currency is likely to become my problem,” said Zeng, who is now the head of a research center under the government’s top economic planning agency. The People’s Bank of China said June 26 that the International Monetary Fund should manage more of members’ reserves.
Russian Proposals
Russian President Dmitry Medvedev has repeatedly called for creating a mix of regional reserve currencies as part of the drive to address the global financial crisis, while questioning the dollar’s future as a global reserve currency. Russia’s proposals for the Group of 20 major developed and developing nations summit in London in April included the creation of a supranational currency.
“We will resume” talks on the supranational currency proposal at the G-8 summit in L’Aquila on July 8-10, Medvedev aide Sergei Prikhodko told reporters in Moscow yesterday.
Singh adviser Tendulkar said that big dollar holders face a “prisoner’s dilemma” in terms of managing their holdings. “That’s why I’m telling them to do this,” he said.
He also said that world currencies need to adjust to help unwind trade imbalances that have contributed to the global financial crisis.
“The major imbalances which led to the current situation, the current account surpluses and deficits, have to be addressed,” he said. “Currency adjustment is one thing that suggests itself.” "(snip)
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As previously discussed in 'bits and pieces', it would appear that the BRIC countries, with their huge export vs import imbalances with the USA, are bound and determined to escape the 'US dollar trap' they currently find themselves in. By this I mean that A. these countries are holding billions of US dollars worth of trade surplus reserves thus face an increasing risk that the US dollar could quickly lose value compared to their 'home' currencies, and B. that the continuing use of the US dollar for international settlements 'costs' these countries a transaction fee ( which in turn becomes a profit for big US banks).
As the Bloomberg authors point out, if the US dollar's status as the world's reserve / international settlement currency falls by the wayside, this will result in a huge devaluation of the US dollar. This will translate into huge US dollar denominated price increases for any and every international commodity ... from food to gasoline / oil to steel / copper.
Re: Dollar Doom brewing ? India calls for new reserve currency
Quote:
Originally Posted by
Melonie
As the Bloomberg authors point out, if the US dollar's status as the world's reserve / international settlement currency falls by the wayside, this will result in a huge devaluation of the US dollar. This will translate into huge US dollar denominated price increases for any and every international commodity ... from food to gasoline / oil to steel / copper.
No country remains top dog forever; it's not that the US is doing poorly it is just the rest of the world is doing better. The US can't continue to consume almost 1/4 of the world’s energy.
Re: Dollar Doom brewing ? India calls for new reserve currency
^^^ more to the point, the US cannot continue to consume far more than it actually produces ... because this excess consumption is only made possible by the willingness of China et al to continue lending America money ... and because America's future ability to ever repay that borrowed money is becoming more and more questionable.
Brazil, Russia, India, China etc. all produce more than they consume. And the major 'recipient' of their excess production is the USA. But as the BRIC countries are pointing out with their call for a reserve currency change, in essence the BRIC countries are worried that they are exchanging the fruits of their own labors for nothing more than piles of increasingly worthless green paper !
When the day arrives that the BRIC countries stop lending to America, there will only be two alternatives for US policy makers. A. they can rein in spending to match actual production ( which will probably result in riots in the streets ), or B. they can simply print new US dollars out of thin air ( which will be incredibly inflationary ).
Re: Dollar Doom brewing ? India calls for new reserve currency
if the dollar gets massively devalued, what will happen to their "home" currencies? Will they skyrocket? But that will hurt their exports... How will they resolve the dilemma?
Re: Dollar Doom brewing ? India calls for new reserve currency
Quote:
Originally Posted by
Adelina
How will they resolve the dilemma?
They can't; they are in a world of shit. When US sneeze the world gets pneumonia.
Re: Dollar Doom brewing ? India calls for new reserve currency
There will be SOME resolution. I wonder what it will be!
Re: Dollar Doom brewing ? India calls for new reserve currency
Quote:
There will be SOME resolution. I wonder what it will be
Well, the last time unemployment and deflation were this bad, the 'resolution' was to employ (as soldiers) and ultimately kill off some 80 million young men ( thus curing unemployment). The 'resolution' was for gov'ts to purchase all sorts of war 'consumables' from shells to tanks to aircraft to ships, and promptly see them blown to hell thus needing production of replacements. The 'resolution' was to devastate some 50% of the world's total production facilities (thus eliminating foreign supply capability i.e. future competitors). The 'resolution' was for the US gov't to control defense contractor wages and consumables prices, and to also ration available supplies of 'consumables', to force the country to match consumption with available supply. The resolution was for the 'victorious' allies to lay claim to all sorts of the world's natural resources ... as well as directly 'administering' the domestic economies of defeated 'enemy' countries.
The 'tin foil hat' crowd would tell you that Russia and China are actually trying to 'bypass' some portion of the US indebted consumer's role in their export economies by fostering increased ( and arguably captive ) trade with certain 3rd world countries. In theory this is the true reason for wanting to drop the US dollar as the 'settlement' currency for such future trade.
~
Re: Dollar Doom brewing ? India calls for new reserve currency
WW3? If the answer is yes, then wars are ARTIFICIALLY engineered! I.e. Planned.
Re: Dollar Doom brewing ? India calls for new reserve currency
since this claim is across the dotted line of economic content, I'll simply post a 'tin foil hat' link
However, the WW2 and post-WW2 economic ramifications are a matter of historical fact.