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Government Finance

UN, G20 and the Dollar

Dollars ! / Photo: pfala, Flickr
Dollars ! / Photo: pfala, Flickr

In the August 2009 ISN Special Issue entitled “Redesigning Global Finances- The End of Dollar Dominance?“, I asked whether the window of opportunity to redesign the global financial architecture has already passed with no real progress having been made. This week, the UN Trade and Development report was published, calling for a “new approach to multilateral exchange-rate management to complement stricter financial regulation.” Their critique of the dollar system contains the usual arguments: it is prone to fluctuations, creates current account disequilibria and requires poor countries to create huge reserves better used elsewhere. To mend this, they suggest nothing less than a new Bretton Woods system. Accordingly, it would be based on managed flexible exchange rates at sustainable levels, thus making great fluctuations and currency crisis a thing of the past and level the playing field for international trade. The report is interesting not because it contains revolutionary new ideas, but because a UN agency officially calls for alternatives to the dollar system.