Greenback’s position secure, analysts say

Bloomberg

Group of 20 leaders Thursday gave approval for the agency to raise $250 billion by issuing Special Drawing Rights, or SDRs, the artificial currency that the IMF uses to settle accounts among its member nations. It also agreed to put another $500 billion into the IMF’s war chest.

"I don’t think that will dent the importance of the dollar," Wang Tao, head of China research at UBS and former IMF economist, said Friday. "They are not talking about an expansion in the use of the SDR."

People’s Bank of China Governor Zhou Xiaochuan last week urged the IMF to expand the functions of SDRs and move toward a "super-sovereign reserve currency." Russia President Dmitry Medvedev said at the summit that such a currency should be partially backed by gold and based on strong regional currencies, his office said.

The U.S. had blocked a doubling of the amount of SDRs outstanding over the past 12 years, according to the IMF Web site. SDRs were created by the IMF in 1969 to support the Bretton Woods exchange-rate system that collapsed in 1971. They act as a unit of account rather than a currency.

The Dollar Index rallied 17 percent in the past year as investors fled riskier emerging markets after the bankruptcy of Lehman Brothers Holdings in September froze credit markets.

The increase in SDRs will allow developing nations to tap IMF money without having to accept changes to economic policies often demanded as a condition of aid.

The cash is disbursed in proportion to the money each member-nation pays into the fund. Rich nations will be allowed to divert their allocations to countries in greater need.