The dollar standard system has not only helped the US realize international circulation of its enormous national debts, it has also helped the world's largest economy to increase its national wealth through monetization or devaluation of the dollar. The dollar's status as the world's leading currency has also increased the US' capability to pay off or dilute its foreign debts through oversupplying and over-issuing the dollar.
From 2002 to 2006 alone, the US diluted an accumulated $3.58 trillion of its national debts under such a monetary strategy. With the evaporation of a large volume of US national debts, the wealth of other countries, especially those holding US national debts, has seriously dwindled over the past years.
In 2009, the value of global foreign reserves was about 13 percent of the world's whole GDP. Of this, more than 60 percent was dollar-denominated assets. In the same year, the gross volume of US assets held by foreign countries, not including financial derivatives, was 1.25 times its nominal GDP. However, dollar depreciation has accelerated the transfer of this large amount of wealth, a process in which the US has proven to be the largest beneficiary.
The current dollar-led international monetary order already fails to reflect the latest developments in the global economic structure. In the absence of a corresponding monetary system, the world economy is encountering a series of challenges and dilemmas induced by conflicting policies among different countries on economic growth, inflation, employment and interest rates. In a sense the latest global financial crisis is an unavoidable adjustment of disparities in the distribution of global interests and a rectification of some other unreasonable problems in the process of globalization.
Because the imbalanced global monetary structure has directly resulted in imbalances in the global current account, there have been strong calls in the international community for reform of the world's monetary system since the onset of the global financial crisis. Following China's proposal of setting up a super-sovereign international reserve currency, European countries, which are facing the possibility of a widespread sovereign debt crisis, have also called for the establishment of a global reserve currency through reforms of the global monetary system under the G20 consultation mechanism.
Considering the widespread international criticism of the current dollar-led global monetary system, a diversified global reserve currency system remains a good option for promoting a balanced and healthy development of the global economy.
The end of the dollar's decades-long hegemony and the formation of a multi-currency monetary system, which also involves the euro, the Japanese yen and the Chinese renminbi, would help the global economy develop in a more balanced direction.
The author is an economics researcher with the State Information Center.