ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846
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Can the SDR become a Global Reserve Currency?

Global economic prospects are worsening rapidly. This has revived the debate on the evolving international monetary system and the international reserve currency that will underpin it. Since the 1940s, the US dollar remains the world's dominant reserve currency. Developments since 2008 have challenged the pre-eminence of the US dollar. The euro appeared to have provided an alternative during 2000-08, but has come under fire since early 2010. Prospects for internationalisation of emerging economy currencies are still limited. The global crisis of 2008-09 has resurrected interest in the special drawing right as an international reserve currency. In this paper, we argue that the SDR fails to meet the main attributes of an international reserve currency - deep and liquid markets, supported by currency convertibility; wide use internationally; macroeconomic and political stability in the issuing country. At this juncture, the critical mass of political will to invest the International Monetary Fund with these responsibilities simply does not exist and/or will take a long time to form. Despite shocks and sometimes acute differences in views on the US dollar, the current system has been resilient over decades, and is likely to remain so for some more years.

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