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The International Monetary Fund is about to assume a role that will amount to a revolution in the global financial system. "A single clause in Point 19 of the communique issued by the G-20 leaders amounts to revolution in the global financial order," noted Ambrose Evans-Pritchard in Britain's Daily Telegraph. "In effect, the G-20 leaders have activated the IMF's power to create money and begin global 'quantitative easing.' In doing so, they are putting a de facto world currency into play. It is outside the control of any sovereign body."

Obviously, the US and many European countries, particularly the UK, who are suffering from severe financial distress, would like to enhance the role of the IMF as lender of last resort. For they have realised that they do not have enough money to bail out their own banking systems. The situation is rather grave for Washington because it is confronted with insolvent US banks. Earlier, Joseph Stiglitz, the Nobel Prize-winning economist, suggested that the US government should go ahead to nationalise the banking system and put it under orders for drastic reform. But the problem is that the US no longer has enough money to take care of its banking crisis. President Barack Obama's non-stop spending, which will hasten the implosion of the dollar, is not helping to make the situation better. The US Federal Reserve has already pumped trillions of dollars into the financial system to keep it afloat, while the US administration and the Congress continue to prescribe deficit spending. Obama has called for a funding proposal for the IMF so that it can consolidate this profound revolution.

Now the IMF is in the process of raising fresh capital to bail out countries facing balance-of-payments crises. It will need at least US$750 billion. Brazil has pledged to pitch in $10 billion for the IMF's recapitalisation, while China has already promised $50 billion. Dominique Strauss-Kahn, the managing director of the IMF, said the Fund will need a substantial increase in its resources in order to act as a guarantor of global economic stability.

There is a hidden agenda in this issue. The IMF would be issuing its currency unit, called Special Drawing Rights (SDR), to countries facing a financial crisis. The SDR - a basket of currencies consisting of the US dollar, the UK pound sterling, the euro and the Japanese yen - might emerge as a de facto world currency. The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries' official reserves. Its value is based on the basket of four key international currencies, and SDRs can be exchanged for freely usable currencies. With a general SDR allocation taking effect on August 28 and a special allocation on September 9, 2009, the amount of SDRs increased from SDR21.4 billion to SDR 204.1 billion (currently equivalent to about $317 billion).

The IMF can revolutionise the global financial system by simply printing its own money. If the US banks were to eventually go under, the IMF could step in with the SDR to bail out the US banks and withdraw once the economy recovers. We are about to see yet another episode of financial wizardry.