My new column is about the thrilling rebirth of the special drawing right, the currency of the International Monetary Fund. Need I say more?
One expert on the subject who was very helpful, but didn’t make it into the column, was C. Fred Bergsten, director of the Peterson Institute for International Economics. Bergsten was extolling the potential benefits of SDRs before the things even existed, and was putting plans in place at the Treasury Department in the late 1970s to enable overseas governments that held big dollar reserves to shift some of them into SDRs. He brought up that idea again in late 2007, and now it seems to be getting quite fashionable.
At one point in our conversation, I tossed this quote from the WSJ at him:
The SDR is “basically the Esperanto, at best, of international currencies,” says Jeffrey Frankel, an economist at Harvard University, referring to the ill-fated attempt to create a common language. “It’s not at all used.”
There’s no real downside of speaking English. There is a downside of holding dollars if the supply gets too great… There is a very logical, coherent case for basing the international monetary system on an international asset.
Bergsten, by the way, seems doubtful that the SDR really will replace the dollar as the world’s reserve currency anytime soon. But he doesn’t say it’s inconceivable.