Azerbaijan, Baku, June 19 / Trend , A.Badalova/
The American dollar can lose its role as a global reserve currency, but neither yuan, nor SDR (Special Drawing Rights) can change this function in the coming decades, the analyst of the German Deutsche Bank believes.
Recently, Russia and China has been actively discussed the replacement of the U.S. dollar as global reserve currency, or several other currencies.
According to the Chinese authorities, the time to use the U.S. dollar as reserve currency has come to an end. Senior Adviser to the Chinese State Commission for Regulation of the banking sector has recently stated that it would be "more practical" to use the international monetary system with four or five major currencies of various countries, rather than a system dominated by a supranational currency. Russian Finance Minister Alexei Kudrin said that yuan will be one of the world's currencies after 10 years.
Moreover, the issues of the two countries' shifting to the mutual settlements in national currencies in the energy sector were discussed during , Chinese leader Hu Jintao's visit to Moscow this week.
"In many countries the peg to the dollar caused inflation to accelerate substantially in 2007/2008, the final phase of the most recent economic boom," Deutsche Bank report says. Oil-producing countries in the Persian Gulf resolutely adhered to their US dollar policy, thus keeping inflation high."
The unwelcome side effects of the dollar's role as a reserve currency have now led to debate in China's elite.
Considerations have been floated to give Special Drawing Rights (SDRs) - a bigger role in international financial dealings, including use as a reserve currency.
These Chinese deliberations are quite understandable, Author of the report Norbert Walter believes.
Exchange rate shifts would dramatically influence the price competitiveness of countries that are as internationally integrated as China.
Walter said it would be difficult to replace the dollar with such a complex tool as SDR.
"Any reserve currency has to provide deep liquidity and low transaction costs to achieve transparency and predictability," he believes.
As for the case of an Asian currency taking a bigger role as a reserve currency, the time is not ripe, he said. The yuan is not yet (capital market-) convertible and therefore not appropriate for international use.
He said the Chinese initiative is rather to be seen as a demonstration of political aspirations rather than a practical suggestion for the currency order for the next several years.
Walter believes if diversification is considered to be an option at present, it should lead out of the US dollar and into the euro. But a further appreciation of an already overvalued euro in a period of dramatic recession in Europe would certainly not be greeted with enthusiasm in Berlin or Paris. The ECB would have to push its interest rates down even further.
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