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The United Nations has called for the introduction of a global currency as a move to prevent a repeat of the current financial and economic crisis. “The current form of currencies around the world is not working and there is need for a one-world currency.

The dollar should be replaced with a global currency,” the UN Conference on Trade and Development (UNCTAD) said in report, proposing the biggest overhaul of the world’s monetary system since the Second World War. The 2009 Trade and Development Report said the system of currencies and capital rules, which bind the world economy, are not working properly and therefore largely responsible for the financial and economic crises.

It added that the present system, under which the dollar acts as the world’s reserve currency, should be subject to an extensive re-evaluation. Although a number of countries, including China and Russia have suggested replacing the dollar as the world’s reserve currency, the UNCTAD report marks the first time a major multinational institution has posited such a suggestion. In essence, the report calls for a new Bretton Woods-style system of managing the international exchange rates.

This means that central banks would be forced to intervene and either support or push down their currencies depending on how the rest of the world economy is behaving. The proposals would also imply that surplus nations such as China and Germany should stimulate their economies further in order to cut their own imbalances. “Replacing the dollar with an artificial currency would solve some of the problems related to the potential of countries running large deficits and would help stability.

But you will also need a system of managed exchange rates,” Detlef Kotte, of the report’s authors said. Countries should keep real exchange rates (adjusted for inflation) stable. Central banks would have to intervene and if not they would have to be told to do so by a multilateral institution such as the international Money Fund, he added. Mr. Kotte’s proposals which were included in the 2009 Trade and Development Report, amount to the most radical suggestions for redesigning the global monetary systems. Although many economists have pointed out that the economic crisis was largely due to the malfunctioning of the post-Bretton Woods system, until now no major institution, including the G20, has come up with an alternative.
Source: Business Guide

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