PROPHECY WATCH: The World Bank’s former chief economist wants to replace the US dollar with a single global super-currency, saying it will create a more stable global financial system. “The dominance of the greenback is the root cause of global financial and economic crises,” Justin Yifu Lin told Bruegel, a Brussels-based policy-research think tank. “The solution to this is to replace the national currency with a global currency.” Lin, now a professor at Peking University and a leading adviser to the Chinese government, said expanding the basket of major reserve currencies — the dollar, the euro, the Japanese yen and pound sterling — will not address the consequences of a financial crisis. Internationalizing the Chinese currency is not the answer, either, he said. Lin urged the international community, especially the US and European Union, to play a leading role in currency and infrastructure initiatives. To boost the global economy, he proposed the launch of a “global infrastructure initiative” to remove development bottlenecks in poor and developing countries, a measure he said would also offer opportunities for advanced economies. “China can only play a supporting role in realizing the plans,” Lin said.
“The urgent thing is for the US and Europe to endorse these plans. And I think the G20 is an ideal platform to discuss the ideas,” he said, referring to the group of finance ministers and central bank governors from 20 major economies. The concept of a global “super currency” tied to a basket of currencies has been periodically discussed by world leaders as well as endorsed by 2001 Nobel Memorial Prize-winner Joseph Stiglitz. A super currency could also be tied to a single currency, but the interconnectedness of world financial markets and concerns about the volatility that can occur as a result of the system being tied to one currency have made this idea less popular. Eswar Prasad, a trade-policy professor at Cornell University who also is a senior fellow at the Brookings Institution, said he disagrees that a super currency would protect the global financial system against breakdowns such as the 2008 downturn which plunged the world economy into its most dangerous crisis since the Great Depression of the 1930s. More