Top developmental economist says steps should be taken to create an international currency to replace the dollar as the world's sole reserve currency

STEPS should be taken to create an international currency to replace the dollar as the world's sole reserve currency, top developmental economist Meghnad Desai said yesterday.

Special drawing rights (SDRs) could be reconfigured for use as the new currency, said Mr Desai, an emeritus professor at the London School of Economics.

"The world needs a better monetary arrangement. We can have an international currency which will take the burden off the dollar as the sole reserve currency," he said at a dialogue in Johannesburg organised by Business Day. There have been mounting calls for a global reserve currency which would give more weight to developing countries, reflecting their growing importance in the world economy.

Mr Desai said that the new SDR should include currencies from the Brics group of emerging economies, which SA has just joined.

Brazil, Russia, India and China are the founding members.

The new SDR should also contain an element of gold, which would help make the unit more robust in the face of currency fluctuations and inflation, he said.

At present SDRs are maintained by the International Monetary Fund (IMF) and can be exchanged for euros, yen, pounds or dollars. They represent a claim to currency held by IMF member countries in their foreign exchange reserve assets.

Mr Desai said the IMF should act like a global bank, taking deposits from its members and issuing SDRs which could be both a means of payment and a store of value.

But he said that it would probably take a decade for this to happen. The US "would be very reluctant to give up the privilege of issuing a currency which people had to hold".

Mr Desai also poured cold water on the idea of creating an African single currency, saying that the continent should learn from the problems faced by the euro zone. "If you don't put political union first, you can forget about it," he said.

African central bankers recently held a meeting in north Africa to discuss the creation of an African currency in the coming decade - a goal which Reserve Bank governor Gill Marcus this week criticised as "misplaced and premature".

The Bank's deputy governor , Monde Mnyande, echoed her comments at the dialogue yesterday, saying that full trade integration had to precede monetary union.

Mr Desai said that the architects of the proposed African currency should consider the differences between growth and inflation rates as well as debt ratios of different countries on the continent before proceeding. "Who will pay for the weaker economies? Who will give up their lunch?" he said. "Unless there is an overwhelming political need for Africa to have union, there is no economic case for it."

Africa had more to learn from the experience of Latin America than from Asia as both Africa and Latin America had high ratios of land to people, while in Asia it was the other way around, he said.

Countries such as SA should not focus on manufacturing but on developing a service sector which required less skills, he said.