FT: Is there going to be a tipping point, a moment at which the dollar is fatally weakened? Or does it just sort of carry on?
GS: As long as the renminbi is tied to the dollar, I don't see how the decline in the dollar can go too far. Now, of course, to some extent it's very helpful because with the US consumers saving more and spending less, exports can be way for the US economy to be balanced. So, an orderly decline of the dollar is actually desirable.
FT: Does it, at some point, need also to decline against the renminbi? Does there need to be some sort of a new global currency deal?
GS: No. I believe that basically the system is broken and needs to be reconstituted. We cannot afford to have the kind of chronic and mounting imbalances in international finance. So, you need a new currency system and actually the special drawing rights do give you the makings of a system and I think it's ill-considered on the part of the United States to resist the wider use of special drawing rights. They could be very, very useful now when you have a global shortfall of demand. You could actually internationally create currency through special drawing rights and we've done it. We issued $250bn and that's a very, very useful step, except the rich countries don't actually need the additional reserves, so all they can do is put it in the shop window and say, we have got that much extra. But they can't actually use it. Now I think it could be used to provide global public goods. The rich countries could put their allocations in escrow. The problem is that there is a cost to using SDRs. It's a very small cost at the moment; it's less than 0.5 per cent, but still is a cost, so somebody has to pay it and I think we have actually the means to do it because the IMF has very large gold reserves – kept in the books at a very low price – and it has been decided to use those gold reserves to the benefit of the least developed countries. So, the IMF could actually pick up the cost of paying for the special drawing rights ...
Life After the Oil Crash Forum
Author
