The current global financial crisis exposed the weakness of the current U.S. dollar-standard global reserve system, and an alternative global reserve system should be more diversified and competitive, economists said on Wednesday.
Fan Gang, a renowned economist and member of the central bank's monetary policy committee, said China has long suffered under the dollar reserve system and that one of the problems is some of the international money has been used without discipline.
"Naturally, in countries like China, we think about changes and the way out," Fan said Wednesday in discussions with economists at an investment forum in Hong Kong.
He called for a globalized reserve currency system in a globalized world, or "a truly international or global currency managed globally and independent of, and delinked from, any country to prevent moral hazard."
Competitions should be encouraged among the different reserve currency systems so as to create a discipline on the countries printing the reserve currencies, he said.
Fan's call echoed voices by Chinese officials including Zhou Xiaochuan, head of the People's Bank of China, as well as Nobel laureate Joseph Stiglitz.
Stiglitz said the U.S. dollar is not ideal as a reserve currency. It is not stable and had earlier prompted some of the economies to increase their foreign reserves, ultimately leading to the unsustainable lending by poorer countries to richer ones.
Stiglitz called for an alternative global reserve system by coordinating the existing efforts for regional reserve currencies or money swap agreements.
But Omkar Gaswami, an Indian economist, said he has doubts as to whether an alternative reserve currency system can come in the next 10 years, as any reserve currency has typically to be backed strong economy and institutions.
Fan admitted it was a long way to go to change anything in the current system formally as an institution and that the special drawing rights (SDRs) will not work in the short term.
But he insisted that the SDR is basically a basket of reserve currencies and that bilateral money swap agreements, regional reserve currencies or their like should be encouraged in the short run, so that the need for drastic changes can be avoided.
The euro, for example, has been a strong currency when the eurozone economies exercised discipline in terms of the monetary policy. But when euro zone suffered in the economic crisis, they also started to issue bonds, making it weaker.
Fan also said the euro is partly successful in that its share in the global reserve system has been rising to about 25 percent.
China is moving in the direction of a basket of reserve currencies, which, hopefully, would make it more flexible in terms of reserve system, Fan said.