A former economist of the World Bank suggests replacing the U.S. dollar with a "supranational currency" in order to avert another worldwide financial crisis.
In a Bruegel seminar in Brussels on Monday, Justin Yifu Lin said he thinks "the dominance of the greenback is the root cause of global financial and economic crises." Lin, a professor at Peking University and a principal adviser of the Chinese government, believes that replacing the national currency with a global currency is the right solution.
The causes of a global financial crisis cannot be quelled even by the internationalization of China's currency, said Lin. He added that he does not view the present global economy with optimism although there are indicators of growth and recovery in both the U.S. and European economies. Lin is pushing for a "global infrastructure initiative" to improve global economy. With the said initiative, hindrances to development in poor and developing countries will be removed and developed economies will enjoy huge economic opportunities.
Lin called on the international economic community, specifically the U.S. and EU, to lead the way in promoting the said initiative, adding that China cannot take on a major role in the achievement of the plans. "The urgent thing is for the US and Europe to endorse these plans," he said. "And I think the G20 is an ideal platform to discuss the ideas," Lin said.
David Bloom, foreign exchange research global head at HSBC, said that changes in the monetary policy of the U.S. "will bring fluctuations for emerging countries' currencies and lead to financial instability". "A supranational currency may be a new direction for development of the global financial system. It also requires different countries to cooperate in coordinating macroeconomic policies," said Chen Wenling, leading economist at the China Center for International Economic Exchanges.
Bloom and Chen agree that China has to take on a more active role in global financial administration. Bloom said that despite the appreciation of the U.S. dollar, the renminbi is anticipated to get stronger during the current year, and if China opens its capital market further, the internationalization of China's currency will be hastened.