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The Scoop on Reserve Currencies
You've heard that the IMF is considering printing hundreds of billions of dollars worth of its own currency - called "Special Drawing Rights" or SDRs. Currently, the SDR is pegged to four currencies: the dollar, yen, euro and sterling.
You've heard that China's central bank proposed making SDRs the world's reserve currency.
You've likely heard that Tim Geithner has said that he supports the IMF's proposal to issue large amounts of SDRs (and that some people say that Geithner also supports making SDR the world's reserve currency).
You may even have heard that Russia also backs making the SDR the world's reserve currency, and that Russia wants the SDR to be pegged to a basket of yuans, rubles and gold.
But you probably have not heard that:
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You've heard that China's central bank proposed making SDRs the world's reserve currency.
You've likely heard that Tim Geithner has said that he supports the IMF's proposal to issue large amounts of SDRs (and that some people say that Geithner also supports making SDR the world's reserve currency).
You may even have heard that Russia also backs making the SDR the world's reserve currency, and that Russia wants the SDR to be pegged to a basket of yuans, rubles and gold.
But you probably have not heard that:
China's government has floated a variant of this idea, suggesting a currency based on 30 commodities along the lines of the "Bancor" proposed by John Maynard Keynes in 1944.
Indeed, the head of the China's central bank wrote recently:Though the super-sovereign reserve currency has long since been proposed, yet no substantive progress has been achieved to date. Back in the 1940s, Keynes had already proposed to introduce an international currency unit named "Bancor", based on the value of 30 representative commodities. Unfortunately, the proposal was not accepted. The collapse of the Bretton Woods system, which was based on the White approach, indicates that the Keynesian approach may have been more farsighted. The IMF also created the SDR in 1969, when the defects of the Bretton Woods system initially emerged, to mitigate the inherent risks sovereign reserve currencies caused. Yet, the role of the SDR has not been put into full play due to limitations on its allocation and the scope of its uses. However, it serves as the light in the tunnel for the reform of the international monetary system.
Keynes proposed that the Bancor was to be fixed in terms of 30 commodities, of which one would be gold. The arguments for currency fixed on a basket of commodities was that it would stabilize the average prices of commodities, and with them the international medium of exchange and a store of value..
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