The International Monetary Fund wants more power to police the global financial system and a bigger role in emergency financing, managing director Dominique Strauss-Kahn said Friday.
In a speech to the Bretton Woods Committee, a finance reform think tank in Washington, D.C., he claimed that a stronger IMF also warrants a new global reserve currency that would serve as an alternative to the U.S. dollar.
“Strauss-Kahn said such an asset could be similar to but distinctly different from the IMF’s special drawing rights, or SDRs, the accounting unit that countries use to hold funds within the IMF,” ABC News reported. “It is based on a basket of major currencies.”
“One day, the Fund might even be called upon to provide a globally issued reserve asset, similar to — but in important respects different from — the SDR,” he said.
Strauss-Kahn added that “having several suppliers of reserve assets would limit the extent to which the international monetary system as a whole depends on the policies and conditions of a single, albeit dominant, country.”
“The challenge ahead is to find ways to limit the tension arising from the high demand for precautionary reserves on the one hand and the narrow supply of reserves on the other,” he also said, according to ABC.
Both China and Moscow support such a plan, but U.S. leaders have vehemently insisted that empowering the IMF’s special drawing rights, or establishing another fund with a global pull similar to the dollar, is not necessary.
The United Nations Conference on Trade and Development has also offered its support to the idea, suggesting that an as-yet-unformed regulatory committee oversee the new currency, which would be traded almost exclusively by governments.
European leaders such as British Prime Minister Gordon Brown and French President Nicolas Sarkozy have also called for an expanded role for the IMF in the emerging global economy.
The IMF’s special drawing rights were created in 1969 as a way of supplementing countries’ currency reserves. Their value is determined by a formula based on the values of the US dollar, the British pound, the Japanese yen and the Euro. The IMF has been using SDRs to help shore up the finances of poorer nations amid recent economic uncertainty.
“There may be a need for a clearer mandate to pursue risks for global economic stability, but also — I stress — for financial stability,” Strauss-Kahn said.
“During the crisis, the Fund proved its worth to the world.”