UN calls for Special Drawing Rights to replace dollar internationally

July 4, 2010

A United Nations report has called for an end to the dollar as the international reserve currency. The UN Department of Economic and Social Affairs concluded that “The dollar has proved not to be a stable store of value, which is requisite for a stable reserve currency.” They argued that countries that have been holding large volumes of US dollar reserves, such as China and Japan, are suffering from undervalued domestic currencies as a result, and therefore have much less buying power to import foreign goods. The report predictably recommended a switch to a global reserve currency controlled by the International Monetary Fund, known as the SDR, the Special Drawing Right.

As CNN explained in their report on the story, under the proposed system, nations would “accumulate the right to claim foreign currencies … rather than the currencies themselves.” The SDR would be backed by a basket of currencies, and the value set by the IMF, which would have sole discretion over how that value is adjusted over time. So not only could they adapt the value of the SDR to accommodate changes in the values of the member currencies, but conceivably, the IMF could also inversely set the value of those currencies through these adjustments. The UN report also expressed concern that the world’s aging population needed to be supported with “sustainable” government pension programs.

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