Claudio Borio, head of the Bank for International Settlements
(BIS) monetary and economic department, has tried to answer a perennial
question in a speech in
Zurich this morning. Does the world need more major currencies to counter
the US dollar’s influence?
Talking at a Swiss National Bank-International Monetary Fund
conference, Borio said: “There is no doubt that the dominance of one currency
creates challenges for the international monetary and financial system (IMFS).”
He added: “Fundamentally, the domestic interests of the
country of issue need not coincide with those of the system as a whole,” perhaps
recalling the words of former US Treasury Secretary John Connally. In 1971, Connally told a group of European
finance ministers that the dollar “is our currency, but your problem”.
However, Borio then discussed why it is not clear whether a
more pluralist system could help address the IMFS’s main weakness. “To my mind,
that weakness is its inability to prevent the build-up and unwinding of hugely
damaging financial imbalances, or outsize financial cycles,” he pointed out.
To get to a world where there are more major currencies
requires, according to Borio, stronger anchors at national and international
level. “The main problem is the lack of an effective anchor for the system as a
whole. It is not clear to me that more pluralism is the answer.
“Instead, there is a need for stronger anchors at national
and international level. This means not just putting one’s house in order, but
also putting our global village in order. Some progress has been made,
especially at national level. But much more needs to be done, especially in
monetary regimes and internationally,” he concluded.