HomeThe global imbalances resulting from the US dollar being the leading world reserve currency, some say, are unsustainable and will trigger of the next major international crisis. In contrast, others say that the US choosing to improve its balance of payments would also lead to the next global depression. For example, Helmut Reisen, researcher for the OECD development center, has emphasized the necessity of US external deficits as song as the US dollar is the only global reserve currency according to the “Triffin Dilemma”. In essence, the Dilemma suggests that if the US stopped running balance of payments deficits and supplying reserves, the resulting shortage of liquidity would pull the global economy into a contractionary spiral.
On the opposite side, yet other economists have expressed the view that the global imbalances are not unsustainable and there is no need for a change in policy. In their view, the US can continue running large current account deficits because the emerging Asian and Latin American markets are happy to keep accumulating dollars. For example, Barry Eichengreen (UC, Berkeley), maintains that there is no reason why the dollar must fall, since there is no reason for balance of payments adjustment. In short, the risk of countries suddenly shifting to other reserve currencies is low.
Another position on this issue states, that the current developments in the global economy already suggest that there is an international support for a new reserve currency, whether or not there is a well-established economic rationale for it. For example, China’s call for an overhaul of the global currency reserve system has been echoed by the Russian President Medvedev as an important building block of a new global financial architecture. Some experts suggest that China is making moves that could soon lead to the convertibility of the renminbi, and thus, make it into a leading world reserve currency in the distant future. In March 2009, as a result of the global economic crisis, China and Russia have pressed for urgent consideration of a global currency and a UN panel has proposed greatly expanding the use of IMF's Special Drawing Rights.
Skeptics point out that the dollar is too entrenched as the international currency of choice and the moves of China and Russia will not be reciprocated by other major players in the world economy.
Question: Is there a need for a new global reserve currency to replace the US dollar?