DO WE TRUST? Photograph sourced from Dollar Art Website
India and Russia believe the global economy is too reliant on the U.S. dollar and have urged to find possible changes to mange the $6.5 trillion currency reserves, ahead of a meeting between Group of Eight leaders later this week.
Bloomberg News writes, “The challenge to the dollar, a linchpin of world finance and trade since 1945, underlines the shift in relative economic power toward emerging markets and away from the developed nations that spawned the global crisis.”
Russian President Dmitry Medvedev said the system based on the dollar and euro have been proved to be flawed in the context of the present global crisis and needs to be changed.
A top Indian economist and adviser to India’s Prime Minister S. Tendulkar on July 3 urged his nation to diversify its foreign holdings away from the dollar.
French Finance Minister Christine Lagarde, has also suggested to explore better coordination of exchange-rate policies without naming flaws with dollar.
Questions need to be asked about “the balance of currencies and the role of currencies in a world that has changed because of the crisis and the growing role of emerging countries,” she said.
Despite all the worries about the dollar’s role, new markets like Indian and China remain dependent on the currency.
The International Monetary Fund said June 30 the share of dollars in allocated global foreign-exchange reserves increased to 65 percent, or $2.6 trillion, in the first three months of this year, the highest since 2007.
The Russian President said there is “no immediate alternative” to the dollar or euro, while proposing development of “regional reserve currencies” to reduce reliance on the US currency.
“We cannot be hostages to the economic situation of a single country, as is happening today with the United States,” he said.
Russia has support. India’s Tendulkar said he is advising Singh to diversify India’s $264.6 billion in foreign-exchange reserves and hold fewer dollars.
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