Not long before the G20 summit kicks off in London on Wednesday, the US has once again adopted measures that have led to substantial depreciation of the US dollar. The US Federal Reserve announced March 17 that it would buy an additional $750 billion dollars of mortgage-backed securities, $100 billion dollars of debt-related bonds and up to $300 billion dollars of long-term treasury bills. The measures clearly indicate that the US government has decided to turn to its money-printing machine to resolve the US fiscal deficit problem.
With large quantities of US dollars being used in today's world trade and in each country's foreign exchange reserve, the US decision to over-issue the US dollars in fact forces people around the world to "foot the bill" for US efforts to shake off the crisis. This move is very selfish, irresponsible and does harm to everyone, including the US itself. It will not only cause a rapid depreciation in the US dollar denominated wealth, that is painstakingly earned and accumulated by other nations as reserves, it also endanger the reputation of the US and its currency.
Concerned with the US abusing the US dollar's world dominating status, now calls for restructuring the global monetary and financial system and reforming international financial institutions including the International Monetary Fund (IMF) have resurfaced prior to the start of the G20 summit in London.
Mr. Zhou Xiaochuan, Governor of the People's Bank of China, advocated states usethe IMF's Special Drawing Rights (SDRs) to gradually replace the US dollar as the world's default reserve currency. The suggestion has attracted plentiful attention around the world, which Brazilian President Luiz Inácio Lula da Silva immediately said is “valid and pertinent.” He also pointed out that most emerging market countries agree with Zhou's viewpoint. Prior to this, the BRIC countries — China, Brazil, India and Russia — appealed for the immediate adoption of measures to expand the four countries' right to speak as well as their representation in the IMF, and called for redistribution of the SDR quota.
A UN advisory committee on financial and economic reform submitted a report to the UN General Assembly on March 26 which supports the monetary policy suggestion of “replacing the US dollar” proposed by the BRIC countries and urges leaders of the world to agree to rebuild t a new international reserve and currency system. Indian Prime Minister Manmohan Singh said that facing the global financial crisis, developed countries cannot cope with it alone, and must strengthen their cooperation with developing countries, especially emerging economies. Australian Prime Minister Kevin Rudd also expressed high-profile support for China, and called on the US to take actions to integrate China more with the global financial system.
The London summit should not indulge in meaningless talk but should instead put forward substantive proposals or plans. Although ending the hegemony status of the US dollar could be a complicated and protracted course that will range from economic fields to the political arena, something that cannot be achieved during the London summit, at least the G20 should reach a consensus on increasing the say of emerging economies, and set forth a clear-cut and goal-specified roadmap and timetable. At present, emerging economies are playing disproportional roles in dealing with international affairs, such as the financial crisis. It is obvious that global economic decision-making now cannot be done without the participation of emerging economies. The only feasible plan is a solution that does not only favor developed countries, but brings benefits to developing countries.
First, the US should pay full attention to the strong voices of the world community, go along with the global historical tide of multi-polar development, and take an initiative to give up its veto rights in the IMF and the World Bank decision making process, in exchange for the European countries' abandonment of some shares, voting rights and positions. Second, the US and Europe should relinquish their longstanding rotating leadership of the IMF and the World Bank, which should be taken by all continents in rotation or constituted by ballot. Third, the IMF's current policies for allocating shares and voting rights should be revised, so as to reexamine share setup, expand basic voting rights, and increase the number of representatives and voting rights from the developing countries. Fourth, those interested parties who expect to increase their right to speak should spare no efforts in making gradual contributions to the IMF, in a fair and rational manner. Fifth, the London summit should agree and authorize the IMF to play a regulatory role in the international financial system, enhance supervision and phase in an early warning system for the international financial market, regarding short-term capital flows and risks arising from financial innovation. IMF could also expand oversight over countries whose currencies are anointed as reserve currencies and prevent those countries from over-issuing currencies, in order to maintain stability of the international financial market.
(By By Shi Jianxiong, a special commentator of People's Daily, a professor of the School of Economics and Management of Tongji University in Shanghai)
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