The president of the World Bank cautioned US authorities on Monday against assuming the dollar would maintain its role as the world's reserve currency. Robert Zoellick said other currencies such as the Euro and the Chinese Yuan could win increasing acceptance in international currency markets.
He added the dollar could increasingly lose its status as the dominant reserve currency in a multi-polar world. “The dollar would remain a major currency” but that it will likely face competition as a reserve currency.
The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency, Mr. Zoellick told the School of Advanced International Studies of Johns Hopkins University.
In his strongest comments yet in the debate over the dollar's reserve-currency status, Mr. Zoellick said that, looking forward, there will increasingly be other options to the dollar.
China and Russia have been the leading voices for an alternative reserve currency to the dollar, viewing the US as the cause of the crisis and concerned that the country's ballooning debt levels are making the global monetary system even more vulnerable.
Mr. Zoellick said the dollar's fortunes will depend on how well the US can bring down its debt load without stoking inflation while restoring a healthy financial system and private sector.
While the European Union faces similar challenges, Mr. Zoellick said he views the Euro as a respectable alternative if the dollar is weak.
The Chinese Yuan, while tightly managed, also could become a force over the next 10 to 20 years as that country opens up, he said.
Zoellick, a former high-ranking US government official and investment banker and is involved in a round of conferences in advance of the World Bank's annual meeting next week in Istanbul.
We are likely to see this shift in the world of investment as well, he said. ”For the first time this month China issued sovereign bonds to offshore investors in Yuan” and Beijing recently announced foreign companies will be able to list their stocks in China, a step toward making Shanghai an international financial center.