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Sept. 27 (Bloomberg) -- World Bank President Robert Zoellick said the U.S. shouldn’t take for granted the dollar’s status as the world’s main reserve currency.
In remarks set for delivery tomorrow, Zoellick said the “next upheaval” in the international economic order is under way as emerging nations gain greater influence.
“The United States would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency,” according to excerpts released by the World Bank.
Policy makers from China to Russia repeatedly have called for an alternative to the world’s main currency in foreign- exchange reserves.
Zoellick’s speech to the Paul H. Nitze School of Advanced International Studies at Johns Hopkins University in Washington echoes his previous comments about the dollar’s standing.
The trade-weighted Dollar Index has fallen 11 percent since President Barack Obama’s inauguration in January, in part because of a budget deficit projected to rise to $1.6 trillion this year as the government increases spending to boost the economy. The index measures the currency’s performance against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona.
Defense of Dollar
U.S. Treasury Secretary Timothy Geithner last week defended the dollar’s role as the world’s reserve currency. The U.S. has a “special responsibility” to preserve confidence in its financial system, and “sustain the dollar’s role as the principal reserve currency in the international financial system,” he said at a press conference Sept. 24 in Pittsburgh, where leaders of the Group of 20 nations met.
Zoellick also will urge intensified coordination among all countries to be sure that economic growth continues while they recognize that there are still 1.6 billion people in the world without electricity.
The G-20 should become “the premier forum for economic cooperation,” Zoellick will say.
At last week’s summit, officials agreed to establish a “framework for strong sustainable and balanced growth.” Countries with significant deficits in their trade accounts promised to save more, while those with surpluses pledged to strengthen domestic demand.
The G-20 also established a peer-review process to monitor efforts to rebalance economies and to hand emerging nations a greater say in managing world growth.
“The G-20 summit is a good start, but it will require a new level of international cooperation and coordination,” Zoellick will say. “Peer review will need to be peer pressure.”
In the U.S., he called for a bigger role for the Treasury Department in pulling together the authority of federal agencies to regulate financial markets. Leading up to the financial crisis, “regulators and supervisors of financial institutions were no longer grounded in reality,” he said.
He also criticized central banks, saying they failed to address growing risks in the economy in the last several years.
Central banks “argued that damage to the real economy of jobs production, savings and consumption could be contained, once bubbles burst, through aggressive easing of interest rates,” Zoellick said. “They turned out to be wrong.”
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