US dollar set to be eclipsed, says WB prez
BEIJING: The US must brace itself for the dollar to be usurped as the world’s reserve currency as American dominance wanes in the wake of the financial crisis, World Bank president Robert Zoellick said yesterday.
Speaking ahead of the World Bank-IMF annual meetings in Istanbul, he said it was time for “responsible globalisation”, in which decision-making was shared between old powers and developing countries such as China and India.
After WW II, the Bretton Woods agreement which cemented the dollar’s ascendancy over sterling, Americans have relied on borrowing cheaply from the rest of the world as governments banked on the dollar as a safe bet. But Zoellick said the greenback’s status could be under threat from the growing strength of the Chinese yuan and euro.
“The US would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency. Looking forward, there will increasingly
be other options to it,”
Zoellick told an audience at Johns Hopkins University in Washington. From now on, he said, confidence in the US currency and its economy would have to be earned.
“The future for US will depend on whether and how it will address large deficits, recover without inflation that could undermine its credit and currency, and overhaul its financial system.” Zoellick’s comments came as Beijing launched the first yuan-denominated bond available to outside investors, as it gradually makes its currency more exchangeable on international markets.
“I expect China will inevitably be drawn outward,” he said. “Over 10 to 20 years, the yuan will evolve into a force.” Several countries, including China and Russia, have repeatedly raised what they see as the problem of excessive dollar hegemony.
Zoellick predicted that the tumultuous events of the credit crunch would eventually lead to a radically different world economic order. He welcomed the expanded role of the G20 group of nations, agreed by leaders at their summit in Pittsburgh last week; but warned against excluding bodies such as the World Trade Organisation and the International Monetary Fund, which have a much broader membership. “The G20 should operate as a ‘steering group’ across a network of countries and international institutions,” he said.
Claire Melamed, head
of policy at the development charity ActionAid, said the
decision at Pittsburgh to shift economic decision-making away from the G8, which includes Italy and Canada but not China and India, could reverberate for decades. “The shift from the G8 to the G20 ... has the potential to be hugely significant, breaking not just the power of the US but that particular group of countries that have had everything their own way for so long,” she said.