Robert Zoellick, president of the World Bnak, said that the U.S. dollar’s role as the world’s reserve crisis may be declining significantly as a result of the global financial crisis. Zoellick says that the dollar will remain a major economic force, but that the balance of power is shifting to other currencies including the Euro and the Chinese Yuan.
After the global economy turmoil that that the world has faced in the last year, the head of the World Bank says that the U.S. shouldn’t assume that the dollar will always be the world’s business currency. In a speech at John Hopkins University’s School of International Studies, Rober Zoellick stated that the world’s finances are undergoing a “seismic shift.”
Zoellick stated, “The United States would be mistaken to take for granted the dollar’s place as the world’s predominant reserve currency. Looking forward, there will increasingly be other options to the dollar.”
According to Zoellick, other currencies that are taking hold include the 16-nation Euro and China’s Yuan, also called the Renminbi. China recently moved to list foreign companies in its stock exchange. Zoellick sees this move as a major step towards China becoming a global financial leader. “China is making it easier for trading partners to do business in Renminbi, for example, through currency swaps. We are likely to see this shift in the world of investment as well,” he said.
In his speech, Zoellick also questioned the major role that central banks played during the financial crisis. Zoellick questioned how much power the U.S. Federal Reserve should have and stated that the Treasury Department may be a better regulator of the U.S. financial system.
Zoellick continued, “In the United States, it will be difficult to vest the independent and powerful technocrats at the Federal Reserve with more authority. My reading of recent crisis management is that the Treasury Department needed greater authority to pull together a bevy of different regulators. Moreover, the Treasury Department is an executive department and therefore Congress and the public can directly oversee how it uses any added authority.”
Zoellick’s comments at John Hopkins come as the International Monetary Fund and the World Bank prepare to hold a series of meetings in Istanbul next week.