IMF SAYS SPECIAL DRAWING RIGHTS CAN PLAY BIGGER ROLE IN GLOBAL ECONOMY

The International Monetary Fund’s Special Drawing Rights can “play an enhanced role” in the global economy as it diversifies away from the dollar, said Isabelle Mateos y Lago, chief of the strategy unit at the IMF’s strategy, policy and review department.

“There is this huge and growing demand for international reserves and a very narrow supply, concentrated in the largest part in the U.S. dollar,” Mateos y Lago told reporters in Moscow today. “This is clearly not sustainable”.

The dollar’s role as the linchpin of the global monetary system has come under attack from some policy makers since the 2008 financial crisis. Zhou Xiaochuan, governor of the People’s Bank of China, has proposed that the International Monetary Fund take over leadership of the global monetary system from the U.S.

Countries that issue traditional reserve currencies face “very serious fiscal consolidation needs in coming years,” Mateos y Lago said. While many emerging-market currencies, including Russia’s ruble, are “in very good shape in terms of debt ratios,” their turnover and market capitalization are too small to make them alternatives to the dollar.

Expanding the roles of SDRs, currency units developed by the IMF based on a basket of major currencies including the dollar and the yen, may present a solution, she said.

Reduce Accumulation

“It could help reduce reserve accumulation and the cost of this reserve accumulation” to countries and decrease global imbalances, she said. Using SDRs may also “help develop new reserve currencies” if the basket is expanded with emerging- market currencies.

The IMF could also issue SDR-denominated bonds, taking a step toward creating a new global reserve currency, she said, adding this idea is “very theoretical” at this point.

A basket of the “most stable currencies from many countries,” rather than a single reserve currency, is the way forward, German Gref, chief executive officer of OAO Sberbank, Russia’s biggest lender, told reporters late yesterday.

“It’s important to diversify currency portfolios now,” Gref said. “There is no alternative for the dollar, but the world is moving in a different direction - not toward a single reserve currency”.

Sberbank is interested in operations with the yuan because they “have a future,” he said, although there isn’t big demand for them at the moment.

Russia has started adding the Canadian dollar to its international reserves and may consider including other currencies, including the Australian dollar, Alexei Ulyukayev, first deputy chairman of Russia’s central bank, said on Nov. 25.

The Micex Stock Exchange in Moscow will start ruble-yuan trading on Dec. 15 as Russia and China seek to reduce the use of the U.S. dollar in bilateral transactions. HSBC Holding Plc. said yesterday it concluded its first trade transaction in yuan in Russia for sporting goods retailer Sportmaster.

Trade in local currencies “may be promising on a very limited scale, but not as a global solution,” Mateos y Lago said today.

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