Efforts should be made to establish a supranational currency as part of a new international financial order

The start of the G20 meeting in Nanjing on Thursday will hopefully provide some new impetus to reform of the international monetary system.

The fundamental problem with the current system is that the US dollar is used as the key international reserve currency, which gives the US central bank the "exorbitant privilege" of printing the United States' way out of its economic difficulties.

Related readings:  China supports G20 to play bigger role in global economic governance  China backs G20's role in global economy  China calls for closer G20 cooperation

And that is exactly what it is doing. Its printing presses are running at full speed in a bid to boost the US economy, regardless of the impact on other countries. This practice contradicts the role of the US dollar as the international reserve currency.

One of the most important functions of the international reserve currency is to serve as a store of value for the savers of the world. The stability of the value of the US dollar in terms of dollar index as well as purchasing power is the prerequisite for the dollar to implement this function.

As a reserve currency country, the US has the responsibility of preserving the value of the dollar. But the US monetary authorities have reneged on this responsibility by recklessly debasing the dollar without paying due regard to the consequences on other countries.

After its quantitative easing in 2008, the US Federal Reserve Board announced a second round in 2010. The US Federal Reserve Board knows very well the inflationary consequences of such a loose monetary policy. Whatever arguments the Fed uses to soothe the nerves of investors, nobody knows whether the Fed can withdraw the liquidity quickly enough to prevent hyperinflation and a free fall of the US dollar. This practice has never been tested in history. If the nightmare scenario of inflation and devaluation comes true, the result will be devastating for China, Japan and the other East Asian countries, which hold trillions of dollars of US government treasuries as foreign exchange reserves.

No matter what policies the US government has adopted and will adopt, stabilizing the US financial market and stimulating the growth of the US economy should not be achieved at the expense of the rest of the world. Unfortunately, the current international monetary system cannot impose the necessary discipline on the US monetary authorities. This implies that the current international monetary system fails to provide a stable store of value for countries which wish to park a proportion of their savings in foreign assets.