8. Towards a New Global Reserve System
The economic crisis has resulted in renewed attention to the creation of a new global reserve system. Some of the reasons should be obvious. The dollar-based reserve system has been fraying for years. At least since the beginning of the decade, the dollar no longer seemed a good store of value; its value was volatile and seemed to be subject to secular decline. But the crisis further undermined confidence in the US economy and its management
The choice facing the international community is whether to create, systematically, a new global reserve system, or to “muddle through,” moving from the dollar-based system to a two- or three-currency reserve system, which could be even more unstable and volatile.
This paper argues that a new global reserve system is absolutely essential, if we are to restore the global economy to sustained prosperity and stability. But achieving this, too, will not be easy. In the interim, the countries of Asia have an opportunity to strengthen existing regional arrangements. Doing so would not only contribute to the strength of the Asian economies, but possibly also be a critical building block in the creation of a new global reserve system.