Central bank governor Zhou Xiaochuan's recent call to replace the US dollar with a new global currency is gaining traction within the international community.
Joseph Stiglitz, a Columbia University economics professor who heads a United Nations expert panel, said a reserve currency system based on an International Monetary Fund (IMF) unit instead of the US dollar, like what Zhou has proposed, could be phased in within a year.
Stiglitz's panel has issued a set of recommendations for global financial reforms, including a proposal for a new reserve system based on the IMF's special drawing rights (SDRs) - a basket of currencies consisting of the euro, yen, sterling and the US dollar.
One of the main issues to resolve is determining how SDRs would be allocated, he said.
Stiglitz, also a Nobel laureate, said developing countries have been lending the United States trillions of dollars "at almost zero interest rates, when they themselves desperately need that money. It's a net transfer, in a sense, to the United States of foreign aid."
In an 18-page report released on Thursday, the UN panel said the new system "could contribute to global stability, economic strength and global equity". It also said such an SDR system would be "feasible, non-inflationary and could be easily implemented".
UBS AG's head of China research and former IMF economist Wang Tao said: "The UN report is a strong signal that there is consensus on the need for a new global reserve currency.
"Despite the potential opposition from the US, politicians and economists may start to push for reforms at the forthcoming G20 summit."
China's central bank governor said in an article earlier this week that it was necessary to create a "super-sovereign reserve currency" to overhaul the existing international monetary system. He also said the IMF's SDR could become the new global reserve currency.
Russia earlier this month proposed creating a new reserve currency to be issued by international financial institutions. It is expected to raise the suggestion at the G20 summit to open in London on April 2.
Brazilian President Luiz Inacio Lula da Silva said on Thursday that it was important to discuss the Russian proposal at the G20 summit.
"It's a valid and pertinent issue; we should discuss it," Lula said, adding that he will talk about China's SDR proposal with President Hu Jintao during the summit.
Lula said Zhou's proposal would win endorsements from most emerging economies.
On Wednesday, US Treasury Secretary Timothy Geithner said the US dollar would remain the top reserve currency but expressed openness to expanding SDRs' use.
Deutsche Bank AG economist Ma Jun, also a former World Bank economist, said Zhou's idea is likely to be one of the most "eye-catching" proposals at the G20 summit in London and will win support from many emerging countries and at least a few developed nations.
"It has the potential to be one of the most profound reforms of the global monetary system in the coming decades," Ma said.