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THE US dollar will not be replaced by special drawing rights (SDRs) as the global reserve currency in the short term, Societe General's head of strategy and economic research Michala Marcussen said yesterday.
The SDR is the International Monetary Fund's unit of account and is made up of the US dollar, euro, Japanese yen and pound sterling. 'The idea doesn't fly,' Ms Marcussen told reporters, saying it would not be practical for exporters to work out prices based on a basket of currencies, and would be difficult to determine which country supplies the money. Instead of having the US dollar as the predominate currency for reserves, other units such as the yuan could be used in future, she added.
'Several years down the road, we probably will see the renminbi becoming one of the regional currencies,' she said. 'And rather than having this single reserve currency world, we could move to a more multi-regional approach.'
Ms Marcussen also said that while the worst of the de-leveraging is over, this process is continuing - and slowing the pace of economic recovery. 'As far as the financial sector goes, we are well advanced in the de-leveraging process,' she said. And while the US housing market is close to bottom, much will depend on unemployment, which is 'a leading indicator for default rates'.
De-leveraging also needs to come from the public sector, which is increasing its debt now to buffer the de-leveraging process, said Ms Marcussen, who likened the economic situation to a hurricane. 'If you think about Hurricane Katrina, it blew over New Orleans. But the clean-up job is still going on and it's going to take a long time,' she said.
Societe General's chief investment officer for Asia ex-Japan, Marco Wong, cautioned about investing in infrastructure companies in Asia and said he would pick countries that are able to keep the spending within their borders.
'For India and China, a lot of the spending will be captured domestically, whether it's employment or equipment,' said Mr Wong. 'But if you look at Hong Kong and Singapore, they are very open, so there's a leakage. (Spending) will go to foreign companies.'
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