Alba Joins The Crusade Against A Dollar

The ALBA joins the crusade against the dollar April 21, 2009 The international financial crisis has cast doubt on the continuity of the dollar as reference currency for international financial markets. Is that the volatility that has seen the U.S. dollar in recent times has involved great risks for the stability of other economies. Given the inability of other currencies to become the new international reference currency, the idea that arises is that of using a basket composed of the main global currency to replace it. But as it matures, several economies have begun to implement various agreements to replace the dollar as trading currency. One of the leaders who offer more resistance to the United States is without doubt, Hugo Chavez. In relation to this issue, the Venezuelan president, has been one of the drivers within the Bolivarian Alternative for the Americas (ALBA), to the creation of the Sucre (Unified Regional Compensation), a monetary system which will replace the trade compensation U.S. dollars in trade between the countries of ALBA in addition to Ecuador (who participates as an observer of ALBA). The Sucre will begin to take action in January 2010.

But what is the Sucre? Sucre is actually a virtual currency for trade between these countries, replacing the U.S. dollar. This proposal envisages the possibility of opening up to those countries in South and Central America and the Caribbean wishing to join the agreement. Given the high volatility of economies that are part of the agreement, the viability of Sucre is not entirely guaranteed. Moreover, although the establishment of Sucre alone does not represent a threat to the U.S. dollar, considering the low relative weight of the economies that are part of the agreement, Sucre is a further sign of risk you are watching the U.S. currency in its global supremacy. Undoubtedly, for the U.S. that the dollar is the world's leading currency involves a number of benefits not less, which are currently in serious danger of vanishing. One of them is U.S. seigniorage perceived to have the power to issue currency world leader.

The supremacy of the dollar seems to be coming to an end and gradually, the dollar is ceasing to be the only currency used for trade between countries. Is that the international financial crisis has generated a proliferation of bilateral agreements for reciprocal exchange of currencies. For example, in Latin America a few months ago, the governments of Argentina and Brazil, signed an agreement to eliminate the dollar in bilateral trade. Also, in the context of Latin American Integration Association ALADI-(a body of economic integration intergovernmental Latin America), is evaluating the use of currencies of member countries in trade between them. In late March, the Brazilian President Luiz Inacio Lula da Silva said on replacing the dollar as global: "When we adopted in Argentina the use of coins in Argentina and Brazil is because we believe that may not be subordinated to the currency from another country?. Making a break with the theme of the dollar is worth mentioning that if the Latin American economies are moving in the use of local currencies for international trade, they can do for macroeconomic stability and strength they have achieved.

While we still have many of the countries, a long way to go (some even have to correct the current path), this does nothing to re-emphasize the value to the economy, work to maintain macroeconomic strength. Returning to the problem of the dollar, China, the most important emerging economy with ambitious targets for global leadership, is stepping up its efforts to displace the use of the dollar as trading currency. A few weeks ago, the Chinese government agreed with Argentina a currency swap agreement with the Chinese government, which will allow Argentina, unzip its dollar volume. Besides the agreement with Argentina, China signed five agreements 'swap' with their counterparts in South Korea, Hong Kong, Malaysia, Belarus and Indonesia. The total amount of the agreements is for a total of 650,000 million yuan (about U.S. $ 94,000 million). Thus, importers of these countries can borrow yuan to the central bank to buy products in China, thereby limiting the effects of fluctuations in exchange rates of the dollar. China's goal of imposing the yuan as an international currency is clear, though the objectives are clear limits and that is why China is encouraging the replacement of the dollar with a basket of currencies, an initiative also supported by Russia, which was introduced in the past G20 meeting.

The immediate proposal to replace the dollar has been the use of Special Drawing Rights (SDRs), which is under the control of the International Monetary Fund. SDRs are a basket of currencies currently consists of the dollar, yen, euro and sterling. SDRs are being used by the International Monetary Fund financing virtual assets and international reserves. For Zhou Xiaochuan, governor of the People's Bank of China (central bank), the use of SDRs would limit the impact of currency volatility on the stability of economies. In this sense, according to Zhou, the aim of promoting the use of SDRs would be "disconnected Establish an international stockpile of individual countries and able to maintain stable long-term, thus avoiding the inherent deficiencies caused by the use of national currencies? . While the reign of the dollar as a leader's days are numbered, is clearly not the intent of any of the countries concerned, that replacing the dollar as the world leader occurs in an abrupt manner. Is that in case the dollar lost at a rapid rate its importance as a global currency, involve a heavy loss of value relative to other currencies, which brings significant losses for the rest of the countries whose reserves are a high proportion denominated in U.S. dollars.

¿It will strengthen developing economies trade in local currencies? Will it increase global financial stability using a basket of currencies as the new gold standard? In principle, both elements seem to mark the new global economic environment and promise to achieve greater strength and stability to the economy. And as this happens, the U.S. should rethink its role in the global economy.