MercoPress. South Atlantic News Agency

US dollar role as reserve currency “intact” but Yuan becoming an alternative

Robert Zoellick warned the US needs to tackle its huge deficit

World Bank President Robert Zoellick said that the dollar's role as a reserve currency is intact, but the United States cannot take it for granted and needs to tackle its huge fiscal deficit.

There would be limited options for central banks to diversify their reserves away from the dollar in the near-term, but the Chinese Yuan would provide an alternative in the next decade or so, he said.

“I think the dollar's role as the reserve currency for some time is relatively secure,” he said at a World Bank conference in Singapore. But he warned that the United States could not take the dollar's dominant role in the world economy for granted and should take responsible approaches in setting policies.

“If one doesn't run sound fiscal policy and monetary policy, it could at some point be at risk. We have to fix the budget deficit issues and other issues,” he said.

China has been moving cautiously in making the Yuan convertible on the capital account, but the country's rapid economic transformation, including the development of its capital markets, would help enhance the Yuan's global status, he said.

“Over the next 10-15 years, you will firstly see Renminbi to be internationalised and provide an alternative,” he said.

Zoellick also said that Japan had not taken serious steps to make the Yen an international currency, removing one potential competitor to the US currency.

On the global economy, Zoellick said he was comfortable about growth prospects for the world this year but recommended governments should not rush to roll back stimulus measures.

“Recovery globally is not going to be symmetrical. It's going to be at a different pace,” he said.

Zoellick also said he was concerned about potential asset bubbles in some Asian countries, where loose monetary policies adopted by governments had led to flush liquidity.