U.S. Dollar in the Crosshairs Ahead of G-20 Summit

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U.S. Dollar in the Crosshairs Ahead of G-20 Summit

In the run-up to next week’s G-20 summit in London, developing countries led by China and Russia are stepping up calls for the U.S. dollar to be pushed aside as the main global reserve currency.

China’s central bank governor, Zhou Xiaochuan, suggested this week that reforms to the international monetary system include the long-term goal of an international reserve currency not connected to an individual nation. China is the biggest holder of U.S. dollar assets and is concerned about the currency’s volatility.

A few days earlier, the Russian government put forward among its G-20 summit priorities a proposal for the International Monetary Fund (IMF) to explore the possibility of creating a “super reserve currency accepted by the whole of the international community.” Russia said the proposal had broad support among other emerging economic powers, including Brazil, India and South Korea.

The Kremlin said its proposal could be pursued either through the creation of a new global reserve currency or through the use of the IMF’s existing Special Drawing Rights (SDR), a reserve asset set up in the 1960s and used only by governments and some international institutions. The SDR is not itself a currency; its value is based on a basket of four currencies – the dollar, euro, pound sterling and yen.

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