Nobel Prize-winning economist Joseph Stiglitz Thursday called for a new global reserve system to replace the US dollar as the world reserve currency.
"There is a growing consensus that there are problems with the dollar reserve system," Stiglitz told a press conference in the UN headquarters, saying that economists have been discussing the weaknesses of single-currency reserve systems for decades.
"One of the problems (with single currency reserves) is that because of the huge level of volatility, countries are accumulating large amounts of reserves," said Stiglitz, who heads a UN expert panel analyzing the financial crisis and recommending reforms.
Calling the dollar reserve system "relatively volatile, deflationary, unstable and (had) inequity associated with it," the former World Bank chief economist said the use of dollar reserves was "contributing to the weakness of the global economy."
Stiglitz said developing countries have been lending the United States trillions of dollars "at almost zero interest rates when they themselves desperately need that money."
"It's a net transfer, in a sense, to the United States of foreign aid," he said.
The UN panel led by Stiglitz proposed for a new Special Drawing Rights (SDRs)-based reserve system.
"A new global reserve system -- what may be viewed as a greatly expanded SDRs, with regular or cyclically adjusted emissions calibrated to the size of reserve accumulations, could contribute to global stability, economic strength and global equity," the panel said in a report released on Thursday.
It said such a system "could contribute to global stability, economic strength, and global equity," and could be "feasible, non-inflationary, and easily implemented."
The SDR is an international reserve asset created by the IMF in1969, and it is only used by governments and international institutions. The reserve currency system, a frequented-mentioned topic these days, will be one of core issues at next Thursday's London summit meeting of the Group of 20 big developed and developing nations on the financial crisis.
Earlier this week, China's central bank Governor Zhou Xiaochuan called for a new super sovereign reserve currency to replace national reserve currencies as the backbone of the global monetary system.
On Wednesday, U.S. Treasury Secretary Timothy Geithner said the dollar would remain the top reserve currency but expressed openness to the expanded use of SDRs.
Admitting that the IMF's SDR system was not problem-free, Stiglitz said better rules were needed on how to distribute SDRs. He said that, by his own optimistic estimates, the proposed new reserve system could be implemented as early as next year, although more conservative economists might not agree.
Stiglitz also highlighted the need for a global economic coordination council. The Columbia University professor said current systems did not ensure global stability and, while a long discussion could be held on why the current systems had failed, there was a clear need for a global economic coordination council.
He envisioned a two-stage path for its creation, modeled on the Intergovernmental Panel on Climate Change. At the initial stage, an independent panel would identify problems; at the next stage, the panel would move towards a political body, he said.