On the heels of a G-20 summit that saw U.S. President Obama play peacemaker in several multi-national disputes, Russian President Dmitri Medvedev reignited talk yesterday of replacing the dollar as the world's reserve currency. Medvedev's words echoed an argument initiated in March by a Chinese central bank official, and to varying degrees supported by world leaders from Brazilian President Luiz Inacio Lula da Silva to IMF managing director Dominique Strauss-Kahn.

Last fall, Global Pulse reported that China and Russia had agreed to construct a new oil pipeline connecting the two nations, and that the dollar would not be used in any financial transactions. At the time, we asked if Russia and China could be establishing a long-term alliance designed in part to isolate the influence of U.S. currency.

In recent weeks, speculation is rife that the dollar could fall as the world's reserve currency. The storm began last week when Chinese central bank official Zhou Xiaochuan suggested that the dollar be replaced by International Monetary Fund units known as "special drawing rights" that are based on a basket of global currencies. The following day, U.S. Treasury Secretary Tim Geithner briefly alarmed traders with his comments in support of expanding IMF use of SDRs to combat recession.

No sooner had the markets calmed when a political fury began to whip among U.S. conservatives. Congresswoman Michelle Bachmann of Minnesota led the charge, introducing legislation to "prohibit a global currency" and touting her message on the airwaves. A Rasmussen poll found that 88% of Americans feel it is "important that the dollar remain America's currency."

But to the center and left, a less fearful analysis prevails. The Economist notes that SDRs have yet to catch on as a global means of exchange and represent in total a miniscule fraction of China's foreign exchange portfolio. And today, Paul Krugman dismisses China's consideration of a global currency as mere denial of how trapped it is by the staggering size of its U.S. Treasury holdings.

Should the U.S. be doing more to protect the dollar? Or could a new global currency help promote worldwide cooperation in economic recovery?