China's currency should play a greater role in a possible future international monetary system that could be developed after eliminating the "wild swings" of the US dollar and euro, Robert Mundell said Monday.
"As the largest trading nation, the second largest national economy and the third largest currency area, China should have an influence in the international monetary system second only to the United States and Europe," the Nobel-laureate economist said in an interview with Xinhua.
Mundell said China could make the dollar-euro duet into a trio once its currency becomes convertible and China agrees to bring its balance of payments into equilibrium.
The Dollar-Euro-Yuan (DEY) economies, representing half the world economy, could then be the anchor for a much-needed world currency, which he calls the "INTOR."
Mundell believes the mainstream of the world economy originally represented by the dollar has split into two parts as a result of the rise in importance of the euro. With wild swings of the dollar-euro exchange rates, other countries - whether attached to the euro or dollar or floating independently - are facing greater difficulties.
To foster a new international monetary system, US and EU financial authorities will have to change their modes of operating, in order to conduct monetary policy by using foreign assets as well as domestic assets, Mundell said.
"Stabilization of the dollar and the euro would also require monetary cooperation to ensure balance of payments equilibrium and a common (low) rate of inflation," he said.
In regards to the eurozone debt crisis, Mundell said the European countries in trouble all introduced overly-generous welfare policies without having the resources to finance them.
"The solution to their problem must lie in a three-fold approach: more adjustment by the deficit countries; more liquidity from their richer neighbors; and a cession of fiscal sovereignty from the nations to a Federal fiscal authority," he said.
Mundell was in China for the 2011 China Gold Summit, which was held in Hangzhou of eastern Zhejiang province from Nov 12 to 14.