Revamping Global Financial Architecture: An Overview
The Management Accountant, Vol. 8, No. 44, pp. 611-614, August 2009
11 Pages Posted: 31 Jul 2010
Date Written: August 7, 2009
The inherent lacuna in the ensuing global financial architecture led to recurrence of financial turmoil. The needs to guard against the systematic risk are felt from every corner. Dollar dominance international market only expedited the woes of country on the contrary it facilitated the US economy to mitigate its burgeoning year long trade deficits in view of keeping the pace of consumption glut, reduce exchange rate risk and lower borrowing costs.
Recent step to add more lending funds of IMF to bail the crisis of the century out is a short term measure and may not rescue the world of revisiting financial meltdown. While discussing the pitfalls of SDR in vogue, the paper argued the need for international reserve currency, redefined SDR, disconnecting from individual nation (US) which would eliminate the inherent risks in a credit based currency (like Dollar) and manage global liquidity. Further, when a country's currency is no longer used as the yardstick for global trade and as the benchmark for other currencies, the exchange rate policy of the country would be far more effective in adjusting economic imbalances. This will significantly reduce the risks of future crisis. However the paper concludes that immediate seizure of dollar dominance would lead to world financial crisis. Thus, revamping of dollar dominance financial architecture to have international reserve currency through the process of sharing of political power across more diverse set of nations is needed.
Keywords: financial turmoil, dollar dominance, Financial Stability Board, international reserve currency, SDR
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