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by P.Parameswaran P.parameswaran – Thu Sep 24, 7:45 am ET PITTSBURGH, Pennsylvania (AFP) – The embattled US dollar is expected to come under scrutiny at a summit of developing and industrialized nations following China-led calls to review its role as a reserve currency. The dollar issue is bound to surface at the two-day meeting in Pittsburgh as US President Barack Obama and other leaders of the Group of 20 economies debate a new framework for tackling the so called global "economic imbalances" blamed for fuelling the latest financial crisis. "Though not clear how the plan would be enforced, it would involve measures such as the US cutting its deficits and saving more, China reducing its reliance on exports and Europe making structural changes to boost business investment," analysts at French bank Societe Generale said in a report. Some argue that the financial crisis resulted from imbalances between savings and investment in major economies, which have led to large current deficits, as evident in the United States, and surpluses, as enjoyed by China. Beijing was the first to call for a new global currency as an alternative to the US dollar as the US deficit rocketed -- the White House estimates it could reach nine trillion dollars over a decade.
But what is baffling analysts is that a key UN agency -- the United Nations Conference on Trade and Development, or UNCTAD -- has joined the chorus of calls for a new reserve currency. An UNCTAD report this month endorsed a proposal that IMF-issued SDRs "could be used to settle international payments." Until the current global economic crisis, SDRs issued by the IMF have been used by IMF member nation states "primarily as a reserve account to support international trade transactions, not as an alternative international currency available to settle international debt transactions in danger of default," said political scientist Jerome Corsi in "Red Alert," a global financial newsletter.