Crisis de Confianza New Currency

By Jonathan Tirone

Sept. 7 (Bloomberg) -- The dollar’s role in international
trade should be reduced by establishing a new currency to
protect emerging markets from the “confidence game” of
financial speculation, the United Nations said.

UN countries should agree on the creation of a global
reserve bank to issue the currency and to monitor the national
exchange rates of its members, the Geneva-based UN Conference on
Trade and Development said today in a report.

China, India, Brazil and Russia this year called for a
replacement to the dollar as the main reserve currency after the
financial crisis sparked by the collapse of the U.S. mortgage
market led to the worst global recession since World War II.
China, the world’s largest holder of dollar reserves, said a
supranational currency such as the International Monetary Fund’s
special drawing rights, or SDRs, may add stability.

“There’s a much better chance of achieving a stable
pattern of exchange rates in a multilaterally-agreed framework
for exchange-rate management,” Heiner Flassbeck, co-author of
the report and a UNCTAD director, said in an interview from
Geneva. “An initiative equivalent to Bretton Woods or the
European Monetary System is needed.”

The 1944 Bretton Woods agreement created the modern global
economic system and institutions including the IMF and World
Bank.

Enhanced SDRs

While it would be desirable to strengthen SDRs, a unit of
account based on a basket of currencies, it wouldn’t be enough
to aid emerging markets most in need of liquidity, said
Flassbeck, a former German deputy finance minister who worked in
1997-1998 with then U.S. Deputy Treasury Secretary Lawrence
Summers to contain the Asian financial crisis.

Emerging-market countries are underrepresented at the IMF,
hindering the effectiveness of enhanced SDR allocations, the UN
said. An organization should be created to manage real exchange
rates between countries measured by purchasing power and
adjusted to inflation differentials and development levels, it
said.

“The most important lesson of the global crisis is that
financial markets don’t get prices right,” Flassbeck said.
“Governments are being tempted by the resulting confidence game
catering to financial-market participants who have shown they’re
inept at assessing risk.”

The 45-year-old UN group, run by former World Trade
Organization chief Supachai Panitchpakdi, “promotes integration
of developing countries in the world economy,” according to its
Web site. Emerging-market nations should consider restricting
capital mobility until a new system is in place, the group said.

The world body began issuing warnings in 2006 about
financial imbalances leading to a global recession.

The UN Trade and Development report is being held for
release via print media until 6 p.m. London time.

To contact the reporters on this story:
Jonathan Tirone in Vienna at
jtirone@bloomberg.net