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New currency to replace the dollar

Saturday March 28 2009

By REUTERS

UNITED NATIONS

A reserve currency system based on an IMF unit instead of the US dollar, a proposal floated by China, could be phased in within a year, Nobel Prize-winning economist Joseph Stiglitz has said.

Mr Stiglitz, a Columbia University economics professor who heads a UN. expert panel analysing the financial crisis and recommending reforms, addressed an issue that became a hot topic this week.

Asked at a news conference when the International Monetary Fund’s Special Drawing Rights (SDR) could replace the dollar as the top reserve unit, he replied: “It could begin to be phased in next year.”

He said the system could be phased in within 12 months. “Realistically, I don’t think it’ll happen that fast,” Mr Stiglitz said.

One of the main issues left to be worked out is how the SDRs would be allocated, he said.

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The reserve currency topic is expected to come up at next Thursday’s London summit meeting of the Group of 20 big, developed and developing nations on the financial crisis.

Mr Stiglitz’s panel has issued a set of recommendations for global financial reforms, including a proposal for a new SDR-based reserve system.

Top reserve unit

In an 18-page report released on Thursday, the panel said such a system “could contribute to global stability, economic strength, and global equity.”

Russia earlier this month proposed creating a new reserve currency, to be issued by international financial institutions. This week, China outlined how SDRs could take over the dollar’s role as the global reserve unit.

On Wednesday, US Treasury Secretary Timothy Geithner said the dollar would remain the top reserve currency but expressed openness to the expanded use of SDRs.