In These New Times

A new paradigm for a post-imperial world

Official: U.S. dollar dominance in world financial system challenged

Posted by smeddum on April 22, 2009 2009-04-21
Special Report: Global Financial Crisis

UNITED NATIONS, April 20 (Xinhua) — The recent loan agreement between China and Argentina to be conducted in their own currencies is another jab at the U.S. dollar’s dominance and the International Monetary Fund (IMF), said the executive director of a nongovernmental organization participating in the UN’s financial summit slated for June 1-3 in New York.

“The U.S. dollar is being challenged every day more and more as the U.S. doesn’t meet IMF standards,” Jo Marie Griesgraber of New Rules for Global Finance Coalition told reporters here before attending a preliminary meeting to the official conference in June.

The first such swap between China and a Latin American country allows Argentine businesses to buy Chinese imports direct in Yuan, cutting out the IMF middleman and allowing both countries to forgo the headache of dealing with the American dollar.

Since the financial crisis, a number of voices have proposed for the U.S. dollar global currency reserve to be replaced with a currency that is disconnected from individual nations and their domestic financial woes, and for the IMF’s reform.

Griesgraber said that although the IMF is an institution “run for and by its major stakeholders,” it is necessary to remember that it is “formally and legally” a UN agency, which means the international community has a right to renegotiate its lending policies.

The IMF, along with the World Bank, was created in 1944 at the United Nations Monetary and Financial Conference — most commonly known as the Bretton Woods conference.

Under its current architecture, the IMF grants countries voting clout dependent on the size of the economy, which is measured in hard currency. But critics contend that the current system creates unfair representation. Even though China’s economy has been booming over the last few years, its currency is not traded internationally and so it only has 3.7 percent of the voting power– less than Belgium’s voting power.

On the receiving side of loans granted by the IMF, Griesgraber said that emerging markets stand a better chance at securing fairer loans than developing countries, which ironically, are in the most need of assistance.

Mexico, for example, was recently granted the “rare” opportunity to take a 47-billion-U.S.-dollar credit line to be used only if need be, said Griesgraber, “but if you are a low-income country, you get the same exact recession-inducing policies, contracting the economy as you have since the early 80s.”

Roberto Bissio, director of Social Watch, an international watchdog network monitoring poverty eradication and gender inequality, said the IMF’s loan conditionality are having a detrimental effect on developing countries struggling to stimulate their economies.

Providing social services to the poor “cannot be done through the International Monetary Fund as it has been suggested by the G20 summit in London,” he said.

Since the crisis erupted last September, Social Watch has been tracking IMF assistance to 11 developing countries and “in all of them the conditionality for those loans have included a reduction in government expenditures … and an increase in the cost of interest rates, which is precisely contrary to what other countries are doing,” he added.

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