The need for greater global currency stability means the world can no longer rely, as it has done since the end of the gold standard, on a currency issued by a single country, the head of the IMF said on Tuesday.
Dominique Strauss-Kahn, managing director of the International Monetary Fund, restated his view that a new global currency might evolve out of the Special Drawing Right, the Fund's in-house unit of account.
“That probably has to be a basket,” Strauss-Kahn said of the eventual replacement for the US dollar.
“In a globalised world there is no domestic solution,” he told a forum.
Strauss-Kahn expressed concern that political willingness to overhaul the international monetary system will falter if, in a year's time, the visible signs of the global economic crisis have faded.
He said the momentum to cooperate had already eased somewhat, six months after the London summit of the Group of 20 agreed on a need for change to ensure a more stable global financial order.
A former IMF chief, Michel Camdessus, said time was of the essence to embark on reform.
“This favorable window of opportunity is there. It will not stay open forever,” he said.
Camdessus gave broad backing to a proposal made by Chinese central bank governor Zhou Xiaochuan to have an expanded SDR eventually replace the dollar as the global reserve currency.
“Our Chinese friends mean business,” Camdessus said of Zhou's plan.
As a corollary of a strengthened role for the SDR, governance changes were needed at the Fund to shift power to big emerging economies, Camdessus said.
To that end, he said the SDR basket must be modified to include the yuan, also known as the renminbi (RMB), and perhaps the Indian rupee and Brazilian real as well.
“The RMB must be there. Period,” Camdessus said. (Reuters)