Special Report: Global Financial Crisis

    BEIJING, March 26 (Xinhua) -- As the global financial crisis continues to bite hard, the dominant position of the U.S. dollar is under widespread doubt.

    That has prompted major economies to issue a series of international financial market reform proposals challenging the U.S. currency.

    Discussions at the upcoming G20 summit in London also may herald a weakening of the U.S. dollar's status and a far-reaching change of the global monetary system.

    Incredulity over U.S. leadership of the world's finances has been accumulating ever since the spreading economic turbulence was linked to the American government's financial policy failure and lax control of its domestic financial market.

    The unease was aggravated when the U.S. government decided recently to strengthen its bailout efforts by turning on the "cash-printing machine," which will inevitably further depreciate the dollar and undermine its reserve currency status.

    Calls for a reshuffling of the international financial and currency systems are gaining momentum not only from the euro zone, but also from developing nations such as Brazil, Russia, India and China -- known as the "BRIC" countries.

    Zhou Xiaochuan, China's central bank governor, published two articles earlier this week, pointing out defects and systematical risks in the current international currency system. Zhou's articles also call for creative reforms to improve the system.

    Zhou said the ongoing financial crisis is a testimony to the inherent deficiencies of the world's current monetary system, and proposed to create a super-sovereign reserve currency as part of the reform.

    In a clear reference to the U.S. dollar, Zhou said the desirable goal of the international monetary system is to "create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies."

    The Special Drawing Right of the International Monetary Fund has the potential to act as a super-sovereign reserve currency, he said.

    Following Zhou's comments, Chinese Finance Minister Xie Xuren called for a full-scale reform of the global financial system to diversify international currencies, improve regulation and give developing countries a bigger say in economic decisions.

    With the same expectations of the G20 summit, Russia has announced a similar call for the introduction of a super-national reserve currency as part of the country's proposal to reform the international monetary and financial system at the summit.

    Russia said the bill has gained support from the other three "BRIC" members as well as from South Korea and South Africa.

    Analysts said leaders of the euro zone are harboring higher ambitions and will make full use of the G20 summit to exert their appeals as the dollar's loss of confidence is leaving more leverage for the already strong single European currency.

    "Euro zone countries regard the financial crisis as a crucial opportunity to shake the core status of the United States in the world monetary system," said Zhang Ming, a scholar with the Chinese Social Science Academy's world economics and politics institute.

    On the reconstruction of the world monetary system, the United States will suffer from a huge blow from the European countries, especially France and Germany, which may come up with some strategies aimed at undermining the dollar and strengthening the euro, Zhang said.

    Analysts said the G20 summit will be a combat field for the United States, the euro zone and rising economies concerning the world monetary system reform.

    Although the establishment of a new reserve currency is a long-term goal, what is in sight is a mounting threat to the dollar's long-lasting dominance.

Zhou Xiaochuan: Reform the International Monetary System

    BEIJING, March 26 -- The outbreak of the current crisis and its spillover in the world have confronted us with a long-existing but still unanswered question,i.e., what kind of international reserve currency do we need to secure global financial stability and facilitate world economic growth, which was one of the purposes for establishing the IMF? There were various institutional arrangements in an attempt to find a solution, including the Silver Standard, the Gold Standard, the Gold Exchange Standard and the Bretton Woods system. The above question, however, as the ongoing financial crisis demonstrates, is far from being solved, and has become even more severe due to the inherent weaknesses of the current international monetary system.

    Theoretically, an international reserve currency should first be anchored to a stable benchmark and issued according to a clear set of rules, therefore to ensure orderly supply; second, its supply should be flexible enough to allow timely adjustment according to the changing demand; third, such adjustments should be disconnected from economic conditions and sovereign interests of any single country. The acceptance of credit-based national currencies as major international reserve currencies, as is the case in the current system, is a rare special case in history. The crisis again calls for creative reform of the existing international monetary system towards an international reserve currency with a stable value, rule-based issuance and manageable supply, so as to achieve the objective of safeguarding global economic and financial stability.  Full story