[Infowarrior] - UN Calls for New Global Reserve Currenc

[Richard Forno]

http://www.bloomberg.com/apps/news?pid=20601087&sid=aSp9VoPeHquI

UN Says New Currency Is Needed to Fix Broken ‘Confidence Game’
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By Jonathan Tirone

Sept. 7 (Bloomberg) -- The dollar’s role in international trade should  
be reduced by establishing a new currency to protect emerging markets  
from the “confidence game” of financial speculation, the United  
Nations said.

UN countries should agree on the creation of a global reserve bank to  
issue the currency and to monitor the national exchange rates of its  
members, the Geneva-based UN Conference on Trade and Development said  
today in a report.

China, India, Brazil and Russia this year called for a replacement to  
the dollar as the main reserve currency after the financial crisis  
sparked by the collapse of the U.S. mortgage market led to the worst  
global recession since World War II. China, the world’s largest holder  
of dollar reserves, said a supranational currency such as the  
International Monetary Fund’s special drawing rights, or SDRs, may add  
stability.

“There’s a much better chance of achieving a stable pattern of  
exchange rates in a multilaterally-agreed framework for exchange-rate  
management,” Heiner Flassbeck, co-author of the report and a UNCTAD  
director, said in an interview from Geneva. “An initiative equivalent  
to Bretton Woods or the European Monetary System is needed.”

The 1944 Bretton Woods agreement created the modern global economic  
system and institutions including the IMF and World Bank.

Enhanced SDRs

While it would be desirable to strengthen SDRs, a unit of account  
based on a basket of currencies, it wouldn’t be enough to aid emerging  
markets most in need of liquidity, said Flassbeck, a former German  
deputy finance minister who worked in 1997-1998 with then U.S. Deputy  
Treasury Secretary Lawrence Summers to contain the Asian financial  
crisis.

Emerging-market countries are underrepresented at the IMF, hindering  
the effectiveness of enhanced SDR allocations, the UN said. An  
organization should be created to manage real exchange rates between  
countries measured by purchasing power and adjusted to inflation  
differentials and development levels, it said.

“The most important lesson of the global crisis is that financial  
markets don’t get prices right,” Flassbeck said. “Governments are  
being tempted by the resulting confidence game catering to financial- 
market participants who have shown they’re inept at assessing risk.”

The 45-year-old UN group, run by former World Trade Organization chief  
Supachai Panitchpakdi, “promotes integration of developing countries  
in the world economy,” according to its Web site. Emerging-market  
nations should consider restricting capital mobility until a new  
system is in place, the group said.

The world body began issuing warnings in 2006 about financial  
imbalances leading to a global recession.

The UN Trade and Development report is being held for release via  
print media until 6 p.m. London time.

To contact the reporters on this story: Jonathan Tirone in Vienna at jtirone at bloomberg.net
Last Updated: September 7, 2009 09:52 EDT