2008-12-04 — ft.com
In their annual report on the world economy published on Monday, the economists said the dollar’s sharp rebound this autumn had been driven mainly by a flight to the safety of the international reserve currency as the financial crisis spread beyond the US.
The overall trend remained a downward one, however, reflecting perceptions that the US debt position was approaching unsustainable levels. An accelerated fall of the dollar could bring new turmoil to financial markets.
The UN team said that, as the financial crisis spread beyond the US, there had been a massive shift of global financial assets into US Treasury bills, driving their yields almost to zero and pushing the dollar sharply higher. At the same time, however, the US’s external debt had risen to new heights that could provoke a dollar collapse.
The report recommends reform of the international reserve system away from almost exclusive reliance on the dollar and towards a globally backed multi-currency system.
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