Need for a neutral reserve to replace dollar, says Prime Minister

Prime Minister Manmohan Singh has echoed China’s proposal for a new global currency to replace the dollar, pointing out that moving to a neutral reserve asset has been discussed since the 1970s. However,he said it is too early to discuss the issue at the one-day G-20 summit in London on Thursday,as it needs“a lot of preparation”.

The power to issue money is an indication of the power of a country and no one gives up power voluntarily. So, these are complicated issues, depending on the power balance,” Singh told a British daily. “There are virtuous technical solutions, but these are not issues that can be resolved through technical analysis,”he said.

The subject of an alternative to the US dollar has cropped up as Washington has issued massive amounts of currency to finance bailouts for its domestic financial system. The excess flow has reduced the dollar’s exchange rate against the euro and Japanese yen. Lower dollar rates mean forex reserves of countries like China and India are worthless.Data put out by RBI on Tuesday said India lost $33 billion due to such valuation losses from April to December 2008.

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Foreign reserves drop $15.5 billion in steepest ever fall

India’s foreign exchange reserves for the last fortnight have dropped by more than $10 billion each week. For the week ended October 24, RBI data shows that reserves slipped $15.5 billion, or 5.65%—the largest drop ever—to $258.4 billion.

The decline was a result of major intervention by RBI in forex markets and a fall in the valuation of reserves as the euro slipped against the dollar. Due to the RBI measures, on Friday the rupee closed at 49.44/6 against the dollar, an improvement of 23 basis points. Last Friday, the euro fell to its lowest level in two years against the dollar, while the UK pound traded at a five-year low.

“The change in foreign currency assets is partly because of changes in the value of the dollar against the euro, yen and other currencies during the period,” RBI’s weekly statistical supplement noted. In the first three weeks of October, India’s foreign exchange reserves dipped $32.50 billion, on top of a fall of around $5.4 billion in September.

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Gold crashes ahead of festivals

Spot gold prices hit a one year low and slipped below Rs 12,000 per 10 gram in Mumbai while spot gold in London hit a 13-month low of $703.45 an ounce on a wave of long liquidations in the international markets exacerbated by below expected gold sales ahead of Diwali in India, the world’s largest consumer of the metal.

Local gold spot prices fell by 2-3% on Thursday in line with the trends in world markets.Experts said a rising dollar vis-à-vis euro & pound and flight of cashs trapped investors looking to liquidate their position in all commodities pulled down gold.

The euro fell to the lowest in almost two years against the dollar, while the pound traded near its lowest in more than five years. Spot gold traded at Rs 11,640 per 10 gm in Mumbai on Thursday, down by nearly Rs 300 and Rs 11,541 per 10 gm in Ahmedabad,down by Rs 600 per 10 gram over the previous day. On the MCX platform, gold December futures also fell to the day’s low of Rs 11,601 per 10 gram,down by nearly Rs 900 over the previous day.

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