ADB Manila 2012: Global economy needs multiple reserve currencies

The US dollar can no longer play the role of world's sole reserve currency given the impact of the global financial crisis of 2008, Columbia University economist Jeffrey Sachs said Thursday at a media briefing during the Asian Development Bank 45th Board of Governors' annual meeting in Manila.   "Ideally, we would like to see at least three or four reserve currencies and a flexible arrangement among them: dollar, euro, yuan and yen," said Sachs, director of the Earth Institute at Columbia.   "The world would be helped by having at this point multiple stable reserve currencies," he added.   However assembling these four "currency pillars" may take some time as Sachs notes that in Asia "there is no single currency right now."   He observed that in China there are efforts to internationalize the renminbi though Sachs did not go into detail.   "In Asia, there is no single currency right now. Though the yuan is not an international currency, are efforts to make the renminbi internationalized," the world-renowned economics professor said.   Sachs favors expanding the Chiang Mai Initiative Multilateralized (CMIM), a regional safety net against financial shocks that functions as an emergency fund from which contributing countries can draw to address liquidity crises.   He said Asian countries need means and tools with which they can move quickly to respond to problems when they arise.   Sachs agrees with ADB on the need for long-term investment instruments that will keep the savings of Asians in Asia.   Another opportunity the Columbia professor sees for Asia is investing in the development of Africa, where China is active.   He estimates that Africa needs about $50 billion for the infrastructure and other needs of sub-Saharan Africa.   Iwan Azis of ADB's office of regional economic integration said efforts, such as the Asian Bond Market Initiative and others to provide the region with long-term investment instruments, will enable Asia to "make the savings stay in Asia."   Azis stressed though that the savings must be channeled to productive areas that will help Asia grow and become stronger to weather economic shocks.