Over-reliance on US dollar

Such a choice should be based mainly on the economic and demographic weights of major IMS participants. For instance, the US' share of the world economy amounts to about 23 percent, but the US dollar is widely used in 70 percent of world trade and 67 percent of international reserves. The euro comprises 26 percent of the world's foreign exchange reserves, while the EU's voting power in the IMF surpasses that of the US.

China is now the world's second largest economy, and the top exporter, but its voting power in the IMF has barely climbed above the 4 percent level.

The IMS clearly needs readjustment.

But on the other side of the coin, China also needs to readjust its economic development scheme from an export-led strategy to a more consumption-oriented economy, in spite of its huge accumulation of foreign reserves, which are largely in US dollars. In order to better manage its foreign reserves, China should import more, and find alternative ways to invest offshore, other than putting its trade surplus back into US treasury bills.

In the years to come, China's national currency should sooner or later be playing an international role in trade settlement and central banks' deposits, in line with its economy going global.

This sounds like a solution to the Triffin Dilemma: If it cannot be totally eliminated, it can, at least, be shared by many others so as to get the imbalanced global economy back onto a more balanced track.

In March this year, G20 central bankers, top academic thinkers and financial leaders assembled in China to seek solutions to this question. Former IMF managing director Michel Camdessus formed an elite 18-member economist group from around the world to tackle the Triffin Dilemma.

The Nobel prize-winning Canadian economics professor, Robert Mundell, proposed the idea of establishing a world central bank, with a fixed exchange rate system and many others have provided their wisdom in developing this idea.

However, no consensus on reform of the IMS is yet in sight. We are, and will be for a long time to come, living in a predominantly US-dollar-denominated world economy that has generated imbalances in trade and the oversupply of liquidity.

The author is senior researcher at the China Center for International Economic Exchanges in Beijing.

(China Daily 05/30/2011 page8)

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