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Soros is right about SDR allocation


Published: March 26 2009 02:00 | Last updated: March 26 2009 02:00

From Dr Dev Kar.

Sir, George Soros ("Peripheral care should be the central concern", March 23) is right on the money saying that if
countries that are peripheral to the current financial crisis are allowed to collapse, that would boomerang back on
developed countries and hurt them as well. As a former economist who worked in the Special Drawing Rights
division of the International Monetary Fund's finance department, I would note that this renewed call for a fresh
allocation should perhaps be complemented by measures to improve the overall attractiveness of the reserve
asset by expanding the list of prescribed holders and the allowable types of transactions involving the asset.

The US has never been in great favour of a wider role of the SDR in the international monetary system, looking
upon SDR allocations as "unconditional" finance with the potential to ignite global inflation while usurping the role
of the US dollar as the international currency of choice. But that was then; this is now.

Faced with potential deflationary pressures in major industrial countries and the fact that existing SDR allocations
are minuscule compared with total reserve assets of central banks, even the most conservative Americans are
unlikely to continue giving credence to such misgivings. In this context Mr Soros's call for an SDR allocation is
not only timely but appropriate under the current world economic conditions.

Dev Kar,

Lead Economist,

Global Financial Integrity Program,

Center for International Policy,

Washington, DC, US

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