Saturday

28th Nov 2020

EU rejects proposal for new reserve currency

  • The US dollar is the world's leading reserve currency. The Euro is the second such currency (Photo: www.freeimages.co.uk)

The EU's economy commissioner Joaquin Almunia rejected a Chinese proposal for a new reserve currency on Tuesday (24 March), saying he felt the dollar would remain the world's reserve currency for the foreseeable future.

Mr Almunia said he didn't envisage: "major structural changes in the role the dollar plays today as a major reserve currency," following Monday's call by China's central bank governor, Zhou Xiaochuan, to create a new reserve currency "that is disconnected from individual currencies."

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

"Everybody agrees also that the [main] present world reserve currency, the dollar, is there and will continue to be there for a long period of time," said Mr Almunia after a meeting of commissioners in Strasbourg reports the Associated Press.

China's call for a new reserve currency reflects fears that its huge stockpile of dollar denominated US treasury notes, amounting to roughly half of its $2 trillion (€1.49trn) in foreign reserves, is in danger of being devalued.

Last week the US Federal Reserve announced the surprise decision to expand its balance sheet and buy up to $300 billion (€223bn) worth of longer-term US treasury securities.

Mr Zhou made the appeal for a reserve currency that "is able to remain stable in the long run" in an essay published on the People's Bank of China's website and included an English translation to ensure an international readership.

In the essay, Mr Zhou proposes that an accounting unit used by the International Monetary Fund known as special drawing rights (SDRs) and which is currently based on a basket of four currencies - the US dollar, the yen, sterling and the euro - should become the new reserve currency.

The proposal suggests expanding this basket of currencies to include all those from the world's major economies and a system whereby governments could store their reserve SDRs with the IMF. In time SDRs would replace the dollar as the world's reserve currency says Mr Zhou.

The British economist John Maynard Keynes, whose theory of counter cyclical spending to lift economies out of recession is currently in vogue, proposed a similar scheme in the 1940s.

The move highlights China's increased willingness to voice its economic opinions on the world stage and comes just ahead of a G20 meeting of the leaders of industrialised and developing nations on 2 April in London where reforming the IMF is firmly on the agenda.

Russia has also mooted the idea of a new reserve currency based on SDRs and has suggested the upcoming G20 meeting is the place to get the ball rolling.

On Tuesday Mr Almunia said that "everybody agrees" over the need to reform the IMF and give developing nations such as China a greater say in how it is run.

China urges Germany and France to solve euro-crisis

Chinese Prime Minister Wen Jiabao on Thursday offered vague promises to buy bonds from troubled euro-countries, but said that it is ultimately up to Germany and France to solve the crisis.

MEPs and China mark change in relationship

Members of the five big political groups in the European Parliament have met with members of the one big political group in the National People's Congress of China, in what has been described as a “changing” and "very friendly" climate.

News in Brief

  1. Brexit talks pick up pace once more
  2. MEPs back US trade detente
  3. Iran diplomat to stand trial in Belgium over 'France bomb plot'
  4. Trump says he'll leave if Biden wins Electoral College vote
  5. EU Parliament: Polish abortion ban risks womens' lives
  6. UN experts warn against racial profiling
  7. EU auditors raise red flag over maritime protection
  8. Four students charged in France's beheading case

Portuguese presidency to focus on social rights and India

Social policies and the relationship between the EU and India will be at the heart of the next Portuguese EU presidency agenda, according to Portugal's secretary of state for European affairs Ana Paula Zacarias.

Opinion

EU corporate due diligence: new rules, or businesses rule?

The Brussels rumour mill has it that the EU Commission is being pressured to put forward a weaker proposal than what civil society organisations, trade unions, and the European Economic and Social Committee say is needed.

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic climate debate on 17 November!
  2. UNESDAMaking healthier diets the easy choice
  3. Nordic Council of MinistersUN Secretary General to meet with Nordic Council on COVID-19
  4. UNESDAWell-designed Deposit Return Schemes can help reach Single-Use Plastics Directive targets
  5. Nordic Council of MinistersNordic Council meets Belarusian opposition leader Svetlana Tichanovskaja
  6. Nordic Council of MinistersNordic Region to invest DKK 250 million in green digitalised business sector

Latest News

  1. Erdoğan jails hundreds for life, as EU weighs relations
  2. Italian energy giant director advising EU foreign policy chief
  3. Poland and Hungary say rule-of-law link needs treaty change
  4. Portuguese presidency to focus on social rights and India
  5. The under-reported power struggle at the top of the OSCE
  6. Poland hammered on women's rights in EU debate
  7. EU 'front-line' states want clearer migration rules
  8. Von der Leyen tells Poland and Hungary to go to court

Join EUobserver

Support quality EU news

Join us