UN takes on US dollar, urging broad changes to fix global economic failings

UN urges systemic fix to global economic failings

UNITED NATIONS — The U.N.’s top economic officials called for less global dependence on the U.S. dollar in a report Tuesday that urges broad changes to the world’s financial policies and markets.

A major economic and social survey says the global financial crises have exposed systemic weaknesses, including its reliance on the dollar. One of the drawbacks of making the dollar the global reserve currency, it says, is that the global economy becomes tied to U.S. monetary policy, which is “based only on the state of the United States economy.”

Instead, Jomo Kwame Sundaram, U.N. assistant secretary-general for economic development, and other senior U.N. economic officials recommend greater reliance on an alternative to the U.S. dollar known as special drawing rights, or SDRs.

“Obviously there’s going to be resistance because in the whole post-war period we’ve had essentially a dollar-based system,” said Jomo, a prominent Malaysian economist and author. “But this kind of transition can be achieved through a gradual process of SDR emissions. And this would not be disruptive.”

The International Monetary Fund uses SDRs as an accounting unit to let nations hold funds within the IMF based on a basket of major currencies. Several countries including China and Russia have called for an alternative to the dollar as a reserve currency and suggested using the IMF’s internal accounting unit.

Rob Vos, director of the U.N.’s economic analysis division, said basing global currency reserves on “truly international liquidity” would reduce pressure on the U.S. dollar “because in order for countries to accumulate reserves in the form of dollars, the United States has to run deficits.”

The U.N. survey also proposes a new global authority that would coordinate financial regulation, saying that the IMF has not been an effective risk manager and does not have the power to deal with crisis situations.

In calling for a new agency, the report cites the global nature of financial markets, in which one nation’s failure can spread harm to others, as has been seen with the U.S. and Europe. Currently, it says, there’s a danger that investors using different regulatory frameworks and complicated derivative products can spread “increased risk throughout the global financial system.”

Other recommendations include:

— Reorganizing fragmented sources of aid for developing countries and dealing with climate change through national trust funds that hand out donor money and can buy government securities.

— Revisiting global trade rules by easing limits on developing countries’ ability to apply for subsidies for export promotion.

“Countries like China, India, Brazil and the rest of the developing world already command half of world gross product, and also a lot of the driving forces of the present growth comes from those economies, rather than the old developed world,” Vos said. “So that puts challenges in terms of how we manage the global economy.”

Secretary-General Ban Ki-moon’s preface says the survey “points out promising directions for reform.”

U.N. spokesman Martin Nesirky, however, said that does not necessarily mean Ban supports all the “many, many ideas that are out there” — including less dependence on the U.S. dollar.