Dmitry Medvedev, Russian president, reminded us this week that top officials are serious about international monetary reform. Mervyn King, Bank of England governor, has also stressed recently that such reform is the biggest challenge facing the global economy. Earlier remarks by Zhou Xiaochuan, People's Bank of China governor, that essentially aim at a diversification of the international currency regime have propelled the issue to greater prominence.

This debate addresses the international monetary implications of the global crisis and seeks more efficient means to manage global liquidity. As such, it has significant implications for the US dollar and for international portfolio allocation in general.

The international monetary system is the remnant of the Bretton Woods system agreed after the second world war, when currencies were pegged to the dollar and the dollar fixed to gold. Then the US was the largest creditor and by far the biggest economy. This gave the dollar its pre-eminent status. However, policy makers, at least since the 1960s, realised that the use of national currencies to manage the global economy is problematic. The US Federal Reserve is very unlikely to subordinate its domestic policy objectives to the needs of the international economy. This creates a fundamental dilemma about the ability of central banks to manage international liquidity. Calls to exit the current regime are therefore intimately linked to considerations for the international economy to reduce reliance on the dollar.