by John M. Curtis
(310) 204-8700

Copyright Oct. 7, 2009
All Rights Reserved.

      Seeking to control world cash reserves, the United Nations asked to dump the U.S. dollar as the world’s reserve currency, replacing it instead with “Special Drawing Rights [SDRs],” a hybrid currency based the U.S. dollar, euro, yen and Chinese yuan.  Calling the U.S. to reduce its trade deficit, U.N. Undersecretary-general for economic and social affairs Sha Zukang urged the 64-year-old International Monetary Fund [IMF] replace the United States as a global reserved currency.  “It is time to emphasize that such a system also creates a more equitable method of sharing the seigniorage derived from providing global liquidity,” said Zukang, asking U.S. and European Central Bankers to rely on the financially unstable U.N. and IMF.  Whatever problems the U.S. or Europe has in managing its own currencies, it pales into comparison with the IMF or World Bank. 

          Giving the U.N. seigniorage rights—namely, the right to coin and print its own currency—would be disastrous.  With 186 members, the IMF would love to manage its financial problems by printing its own currency.  Without  enjoying national sovereignty, Zukang wants the U.N. under the auspices of the IMF to begin printing its own currency.  “It is timely to emphasize that such a system also creates a more equitable method of sharing the seigniorage derived from providing global liquidity, said Zukang, placing the world’s financial system into the hands of the U.N.  Never again would the U.N., IMF or World Bank ever need to beg sovereign nations for cash.  They could simply print or coin themselves whatever cash they needed, regardless of the fact the U.N., IMF or World Bank have no economy, or cumulative goods-and-services, on which to value its currency.

             Calling the IMF’s Speical Drawing Rights for a new reserve currency, places too much power into the hands to the U.N.  Seeking to generate its own wealth without producing any  goods-and-services, members of the IMF or World Bank would no longer have to borrow from the U.S. Federal Reserve, European Central Bank or Asian Central Bankers to  get currency.  “Greater use of a truly global reserve currency, such as the IMF’s special drawing rights [SDRs] enables the seigniorage gained to be deployed for development purposes,” said Zukan, reveals, in no uncertain terms, the motive of third world debtor nations to dump the dollar as the world’s reserve currency.   If the IMF or World Bank prints its own currency, then there’s no longer any need to borrow for U.S. or European central bankers.  No organization—U.N. sponsored or not—can afford to allow itself to print or coin money.

          What could be more clever than allowing a U.N.-sponsored organization like the IMF to coin or print its own money?  Always cash strapped, the U.N., IMF or World Bank, would never need to borrow and repay money from the U.S., Europe or Asia.  China, which decoupled its yuan from the U.S. dollar in 2005, would gain nothing by letting the IMF’s special drawing rights to determine currency rates.  China’s yuan would almost certain devalue under the U.N. plan.  Third world countries would stand to gain by allowing the IMF to print more currency to fund economic development.  If currencies are printed by international bodies, it could lead to more inflation.  There would be no checks-and-balances with an artificial currency based on no Gross Domestic Product, only a printing press.  Creating a new reserve currency from the IMF would cause global inflation, throwing currency markets into chaos.

            Meeting in Istanbul, delegates of the IMF denied that secret meetings were underway to dump the dollar as the world’s reserve currency or to replace it in petroleum trades.  Asked about the accuracy of those reports, Saudi Arabian central bank chief Muhammed al-Jasser said “absolutely not,” in response to whether he sought to replace the dollar.  “We did not discuss it at all,” said Russia’s deputy finance minister Dmitry Pankin, dismissing rumors of an imminent change in reserve currency.  Speculation swirled at the IMF meeting over certain U.N. reports about finding a new reserve currency.  Worries about the dollar’s weakness prompted speculation that finance ministers sought a more stable currency.  “Oil producing countries need to stabilize revenues but . . . I don’t see a need for oil trade to be denominated differently,” said Algerian Finance Minister Karim Djoudi.

            Combating the worst economic downturn since the Great Depression, the U.S. Federal Reserve Bank created a weak dollar for the expressed purpose of discouraging imports and encouraging exports.  Keeping interest deliberately low depressed the U.S. dollar driving petroleum and other commodity prices up.  Despite the dollar’s weakness, oil exporter watch their prices rise with the dollar’s devaluation.  “In fact, when the dollar weakens, commodities prices increase by a higher ratio,” said David Moore, an analyst with Commonwealth Bank of Australia.  Replacing the dollar as the reserve currency and allowing the U.N.-backed IMF to use baskets of currencies or “special drawing rights,” would create massive inflation by flooding currency markets with artificial cash.  All industrial powers, including China, would have their currencies devalued by printing-press money destined for the Third World.

.John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com and author of Dodging The Bullet and Operation Charisma.