A paper written ahead of the recent G20 summit by Zhou Xiaochuan, governor of the Chinese central bank, caused quite a stir. Zhou called for the establishment of a global reserve currency, a step which would firmly tip the balance of economic power in the direction of emerging economies like China and India, but would also bring benefits to poorer nations in the developing world.

The dollars role in international trade should be reduced by establishing a new currency to protect emerging markets from the confidence game of financial speculation, the United Nations
said.

Two very obvious changes have prompted this reaction: First, there is a growing recognition that
the course towards the current crisis was plotted when President Nixon severed the link between the dollar and gold in 1971. Second, the fact that, quite unlike any president before him, not only does Barack Obama believe in a more just and inclusive world, he also seems to recognise that creating such a world requires some levelling of the global economic playing field. The creation of a global reserve currency would be an essential first step in that process.

UN countries should agree on the creation of a global reserve bank to issue the currency and to
monitor the national exchange rates of its members, the Geneva-based UN Conference on Trade and Development said on Tuesday in a report.

China, India, Brazil and Russia this year called for a replacement to the dollar as the main reserve currency after the financial crisis sparked by the collapse of the US mortgage market led
to the worst global recession since World War II. China, the world's largest holder of dollar reserves, said a supranational currency such as IMF's special drawing rights, or SDRs, may add
stability.

There's a much better chance of achieving a stable pattern of exchange rates in a multilaterally-agreed framework for exchange-rate management, Heiner Flassbeck, co-author of the report and a UNCTAD director, said. An initiative equivalent to Bretton Woods or the European Monetary System is needed. The 1944 Bretton Woods agreement created the modern global economic system and World Bank and IMF.

While it would be desirable to strengthen SDRs, a unit of account based on a basket of currencies,
it wouldn't be enough to aid emerging markets most in need of liquidity, said Flassbeck, a former
German deputy finance minister who worked in 1997-1998 with then US Deputy Treasury Secretary Lawrence Summers to contain the Asian financial crisis.

Emerging-market countries are underrepresented at the IMF, hindering the effectiveness of enhanced SDR allocation. An organization should be created to manage real exchange rates between countries measured by purchasing power and adjusted to inflation differentials and development levels, UN said. The most important lesson of the global crisis is financial markets
don't get prices right, Flassbeck said.

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The unemployment rate jumped to 9.7 percent in August, the highest since June 1983, as employers eliminated a net total of 216,000 jobs.

The level of job cuts is less than July's upwardly revised total of 276,000 and is the lowest in a year. Analysts expected the unemployment rate to rise to 9.5 percent from July's 9.4 percent, and job reductions to total 225,000.

If laid-off workers who have settled for part-time work or have given up looking for new jobs are included, the so-called underemployment rate reached 16.8 percent, the highest on records dating from 1994.

The economy is showing consistent signs of improvement, but probably not enough to stop employers from cutting jobs or to keep the unemployment rate from rising.

The Labor Department is expected to report Friday that the jobless rate increased to 9.5 percent in August, from 9.4 percent in July, as employers cut 225,000 jobs.

The employment report will follow other recent data that shows the economy is pulling out of the worst recession since World War II. A trade group reported Tuesday that the manufacturing sector grew in August for the first time in 19 months, while home sales have increased for several months.

But the economy isn't expected to grow strongly enough this year to persuade companies to ramp up hiring. Most economists expect the unemployment rate to top 10 percent by early next year.

"We have a very long, painful healing process ahead," said Bruce Kasman, chief economist at JPMorgan Chase & Co. "The good news is we're starting it, the bad news is we need much faster growth" to bring the employment rate down.

A loss of 225,000 jobs would be the smallest monthly decline since last year, a sign that layoffs are easing. Employers cut 247,000 jobs in July, compared with an average of 691,000 per month in the first quarter.

Still, the job cuts are holding down wages and salaries, while credit remains tight and home prices and stock portfolios have fallen. All those trends are restraining consumer spending, which makes up 70 percent of the U.S. economy, and could weaken the recovery.

Most retailers posted sales declines last month as shoppers limited back-to-school purchases to focus on necessities. Discounters did better than upscale chains, but the results Thursday raised further concern about the upcoming holiday season.

Other economic news on Thursday was mixed. The Institute for Supply Management, a trade group, said the service sector inched closer to growth in August, but still contracted for the 11th straight month.

The ISM's services index, which covers hospitals, retailers, financial services companies and more, rose to 48.4, up from 46.4 in July. Still, readings below 50 indicate the sector is shrinking.

In a separate report, the Labor Department said the number of laid-off workers applying for benefits dipped to 570,000 last week from an upwardly revised 574,000. That was a weaker performance than the drop to 560,000 claims that economists projected.

The number of people receiving jobless benefits totaled 6.23 million, up 92,000 from the previous week, which had been the lowest level since April.

Economists closely watch initial claims, which are considered a gauge of layoffs and an indication of companies' willingness to hire new workers.

First-time claims have trended down in recent months and are below the recession's high of 674,000, reached in the first week in April. But even with the improvement, they are running at levels well above the 325,000 mark considered a sign of a healthy economy.

Federal Reserve policymakers said in minutes from an August meeting, released Wednesday, that they expect the economy to recover in the second half of this year. But labor market conditions are still "poor," the Fed minutes said, and many companies are likely to be "cautious in hiring" even as the economy picks up.

Many economists credit the Obama administration's $787 billion economic stimulus package of tax cuts and spending increases, along with the Cash for Clunkers program, with helping spur the recovery. But they worry about what will happen when the impact of the stimulus efforts fades next year.

Vice President Joe Biden issued an upbeat report card on the economy Thursday, saying that the massive stimulus program had been more effective "than we had hoped."

Still, consumers are not spending enough to boost retailers' bottom lines. Discounter Target Corp. and warehouse club operators Costco Wholesale Corp. and BJ's Wholesale Club Inc. said Thursday that sales at established stores dropped.

A 5 percent jump at TJX Cos., which operates discount chains TJMaxx and Marshall's, topped expectations. But upscale retailers, including Saks Inc. and Nordstrom Inc., reported a weak month.

On Wall Street, stock indexes rose. The Dow Jones industrial average added about 64 points, as broader indexes also edged up.

More job cuts were announced this week. Washington-based manufacturer Danaher Corp. said it will lay off about 3,300 of its roughly 50,000 employees, an increase from the 1,700 cuts it announced in the spring. American Airlines said it is cutting 921 flight attendant jobs as it deals with an ongoing downturn in traffic and lower revenue.

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WITH interest rates low, 13above.com takes a look at what that means for your mortgage, your savings and the prospect of dipping your toe back in the share market.

Interest Rates Dice : Low rates ... Use extra cash from interest rate cuts to keep paying off your mortgage, say financial planners.


Mortgages :

The Reserve Bank left interest rates unchanged at 3.25 per cent at today's meeting.

The decision surprised economists, who were tipping a cut of between 25 and 50 basis points. With rates on pause, is now the time to lock in a fixed rate mortgage?

Give it a few more months, since rates could fall further, says Prescott Securities chief economist Daryll Gobbett.

"I think we’re looking at a cash rate of 2 per cent or 2.25 per cent. Not tomorrow, but maybe by May,” says Mr Gobbett.

Existing fixed rate deals don’t hold great appeal anyway, says Count Wealth financial planner Desiree Fraser.

She advocates using fixed rate mortgages to shield yourself when you know you can’t afford a bigger monthly repayment – not for second-guessing the future.

"If you know you can’t afford interest rates to go up another 3 per cent, lock it in now. So use it as a protective mechanism,” she says.

"Do it on the basis of what is affordable to you, rather than what you think will happen in the future."

Keep putting extra cash from a rate cut towards your mortgage.

"The best advice to give when interest rates are falling is to maintain your payments at the high interest levels,” says Heraud Harrison private client adviser David Marasea.

"Don’t reduce the payments just because interest rates have gone down. You’d be surprised at the compounding effect."

Paying down a mortgage at 6 or 7 per cent is a better deal than socking it away in cash and earning just 3 per cent interest, says Mr Gobbett.

"Keep chipping away at that mortgage,” he says.

Savings :

People who yanked money out of the haemorrhaging share market last year now face dwindling returns on their cash as interest rates tumble.

Term deposits that paid 7-8 per cent late last year have fallen to around 3 per cent – less than the inflation rate of 3.7 per cent.

Australians have upped their savings from zero to 4 per cent of income as nerves about the economy dampen the urge to spend, but are hardly earning anything on that cash. So should they consider investing that money instead?

"It depends on why they’re saving,” says Mr Gobbett.

"It really comes down to if people are saving for a house or something for the next 12 -18 months, (or) keeping that money (as) savings or term deposits because of the risk."

Those looking to the longer term should consider shares offering good dividends (some give an 8 per cent return), instead of tiny interest returns, says Mr Gobbett.

"If saving for retirement or lifestyle, they should start looking at bank shares where they will get a better level of dividend, even with cuts we’ve seen with ANZ lately,” he says.

Ms Fraser says things are tough for savers.

"They’re getting hit quite hard,” says Ms Fraser of people who parked cash in what used to be high-interest accounts.

Rates will stay low, so look at your spending and consider if you need the income from savings to live on. Ask yourself what your priorities are. If protecting your capital isn’t important, you might be better off spending the money and rebuilding savings later, Ms Fraser says.

Shares :

Low interest rates discourage savings, but with the ASX at five-year lows, is it a good time to invest in shares? What about borrowing to invest now that rates are low?

"Obviously there is still so much concern in the general public about what’s going to happen and when it’s going to occur,” says Ms Fraser.

"There is no end goal. No one can tell them when the market is going to recover."

Few clients are showing up with a pool of cash to get into the market, she says.

Mr Gobbett urged caution with margin loans: they can burn you if you pick the wrong market bottom.

"Just be a bit careful at the moment,” he says.

"The problem is that if the market falls further, you have to tip more money in."

If you do invest, focus on companies paying good dividends or consider buying into new share offerings by big companies, often at a discounted price.

Commbank invited retail investors to buy in with just $1000, and Wesfarmers offered shares at a few dollars discount. Many banks are still paying good dividends, he says.

"Twelve or 18 months ago, it would have been quite risky, but now all shares are down, even ones that are good value. So it may be time to buy into some share offerings that are offered at discounts," he says.

The market is always a good long-term bet, says Ms Fraser.

"I think it’s appropriate as always for people with a long term horizon, say seven years, who don’t require it for income and don’t need the capital,” she says.

"It depends largely on your risk tolerance and your investment time horizons. If you’ve got the next 20 years to invest, then you’ve got to accept the share market represents value, even if it goes lower," says Mr Marasea.

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