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‘SDR a popular alternative to dollar’

Special Correspondent

It is linked to a weighted basket of four major currencies

— Photo: V. Ganesan

C.T. Kurien, chairman of the Malcolm and Elizabeth Adiseshiah Trust, presents the Malcolm Adiseshiah Award 2009 to Professor C.P. Chandrasekhar (second from right) of the Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University, on Friday. Also seen in the picture are (from left) executive trustee of the M&EA Trust H.B.N Shetty; chairman of MIDS R. Radhakrishna; and Director, MIDS, R. Maria Saleth.

CHENNAI: The American dollar, despite lacking the legitimacy to serve as the world’s principal reserve currency, dominates because the time for its substitute is yet to come, C.P. Chandrasekhar, Professor, Centre for Economic Studies and Planning, School of Social Sciences of the Jawaharlal Nehru University, New Delhi, said on Friday.

Referring to the renewed talk of the demise of the dollar in the wake of the global crisis, Professor Chandrasekhar said the most popular alternative was the Special Drawing Rights (SDR) of the International Monetary Fund (IMF). The SDR, which was more of a unit of account, was linked, in terms of value, to a weighted basket of four major currencies. But, there were several obstacles to the SDR serving as the sole or even principal reserve.

He was delivering the Adiseshiah memorial lecture on ‘Global imbalances and dollar’s future’ at the Madras Institute of Development Studies (MIDS) after receiving the Malcolm Adiseshiah award instituted by the Malcolm and Elizabeth Adiseshiah Trust (M&EA Trust). The award was given to Professor Chandrasekhar for distinguished contributions to development studies.

Though the euro was another alternative, the basic problem was the presence of “too many governments to agree on too many things,” he said.

Explaining the hurdles concerning the SDR, Professor Chandrasekhar said $317 billion worth of SDRs currently available were distributed across countries, but this was a small proportion of the global reserve holdings of the dollar estimated at more than six trillion. Any expansion of the volume of SDRs in circulation required consensus among countries that had at least 85 per cent of votes in the IMF. Reaching SDRs to countries which would like to hold them depended on the willingness of others to sell. With the United States having more than 15 per cent vote share, it would not encourage the situation of the SDR displacing the dollar.

“If despite this, the SDR is the focus of attention in the search for an alternative to the dollar, that can only be because there is as yet no national currency that can displace the dollar,” he said.

He also added that “this is indeed a period of crisis. But, as yet, there does not seem to be any indication of how the crisis would get resolved.”

C.T. Kurien, Chairman of the M&EA Trust, who gave away the award, wanted researchers to analyse the paradoxical situation of why the dollar did not collapse despite losing its strength over the years.

R. Radhakrishna, chairperson of the MIDS, said the global economy was recovering and this was led by Asian countries, particularly India and China. H.B. N. Shetty, Executive Trustee of the Trust, read out the citation of the award. V.K. Natraj, former MIDS director, and R. Maria Saleth, present director, spoke.

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