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The U.S. would be mistaken to take for granted the dollar's place as the world's predominant reserve currency, World Bank Group President Robert Zoellick warned. He noted that there will be other options to the dollar in the future. The World Bank chief's warning comes as China, Russia, Brazil and India repeat calls for a replacement to the dollar as the global reserve currency.
In excerpts from a speech to be delivered on Monday at the Paul H. Nitze School of Advanced International Studies in Washington, DC, Zoellick said a new level of international cooperation and coordination will be required to form a new framework for strong, sustainable and balanced growth. He applauded the decision taken at last week's G-20 Summit to initiate a new peer review system.
"As agreed in Pittsburgh last week, the G-20 should become the premier forum for international economic cooperation among the advanced industrialized countries and rising powers," he said.
With regard to the current economic crisis, Zoellick said central banks failed to address risks building in the new economy. "They seemingly mastered product price inflation in the 1980s, but most decided that asset price bubbles were difficult to identify and to restrain with monetary policy."
According to him, central banks argued that damage to the "real economy" of jobs, production, savings, and consumption could be contained once bubbles burst, through aggressive easing of interest rates. But, they turned out to be wrong.
Moreover, he said in the U.S., it will be difficult to vest the independent and powerful technocrats at the Federal Reserve with more authority. "My reading of recent crisis management is that the Treasury Department needed greater authority to pull together a bevy of different regulators," he said.
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