The pound bought it long ago, and with the dollar looking ropy, does the world need a new reserve currency – something stable that people can retreat into when they feel the need?
Well yes, of course it does. Almost all currencies, in fact, should be a lot more stable than they are. It's the willingness of politicians and monetary authorities to debauch them and enjoy a short-term boom that gets us into pickles like the one we are in today. But given that you can't trust Washington, London or Frankfurt to restrain themselves, what options are left?
China's central bank governor Zhou Xiachuan has suggested a supra-sovereign reserve currency, with the IMF running it. All the emerging BRIC countries (Russia, Brazil and India too) have backed the idea. And – shock – a punch-drunk US Treasury Secretary Tim Geithner said he was quite open to the idea (though the dollar slid sickeningly at that news, forcing him into a quick retreat).
Could the IMF become the world's central bank? Well, to some extent it already is. It already runs Special Drawing Rights, based on a basket of major currencies, which countries can use when they need to. If those became a generally accepted means of payment, it's effectively a new world currency. And since the IMF would be independent of governments, some stability might be restored.
Possibly. The IMF still wouldn't be creating a new, stable world currency – the SDRs would rest on other people's washed-out dollars, or pounds, or euros. Well, maybe not too many dollars, which could be further bad news for the Americans. And is the IMF the right institution to be managing anything like this, anyway? The Chinese, who hold nearly a third of the world's dollar reserves, quite reasonably say that they are under-represented in the IMF's decision-making. But the problems are deeper than that. The IMF is a 1940s Keynesian institution. It's small, ineffective, outdated, and carries endless baggage. The world monetary system has moved on. So should we.
Dr Eamonn Butler's new book, The Rotten State of Britain, is now available to buy now. Click here to find out how.