Imagine a single currency, all around the world. No more converting between Dollars and Euros and Pounds, the money in your wallet is your ticket to ride anywhere
Sound like a fantasy? Throughout history it’s been more or less the standard. The coins from one era might come from Rome or Madrid or London or Beijing, but one accepted unit of exchange was the norm until very recently. In many ways, the standard now comes from twelve Federal Reserve banks in paper form, printed with green ink.
But we’re a global society now, with total worldwide trade taking up nearly $8T of the global product of $52T. Is it time for a new global currency that isn’t subject to the needs and politics of one nation? More and more, the answer is “yes”
. But getting there, as with anything international, is the hard part.
The standard of currency right now is the US Dollar. This has been true since a month after D-Day when the leaders of the developed world at war sat down at Bretton Woods, New Hampshire, and agreed how to win the peace. From that day on, nearly all international trade has been priced in US Dollars.
That’s not to say it’s been a comfortable relationship. In 1971 President Nixon responded to some monkeying around by the French and some other nations by pulling off the Dollar’s convertibility to gold, backing our of our end of the Bretton Woods agreement. The world responded by … largely ignoring the situation and still using the Buck as the standard, as it is today. Nevermind that we can print as many as we want and run up huge budget deficits.
Developing nations have been squawking about this relationship for a long time. Malaysia has called for a return to gold for a long time, as have other predominantly Moslem nations for whom the Qur’an defines gold as the only real money. China has weighed in strongly lately as well, shocked by the reserves of US T-Bills they’ve found themselves holding as a reserve for their export driven rise to a new standard of living.
In 2009, Zhou Xiaochuan, President of the People’s Bank of China, called for “creative reform of the existing international monetary system towards an international reserve currency,” believing it would “significantly reduce the risks of a future crisis and enhance crisis management capability.” He’s far from the only one. There are many plans out there for an international currency, some defined by gold, some by an international bank, but most as a basket of national currencies
The closest we have to a truly international currency is what the International Monetary Fund (IMF) calls “Special Drawing Rights” (SDR). It’s a basket of US Dollars, UK Pounds, Euros, and Japanese Yen set by the IMF according to … some standard they set up. It’s not used much, but it has its appeal.
For an international currency, the first step is a basket like the IMF tried to define – but tied to trade. And that’s where we get to the total trade by currency (nation, except in the EuroZone). It’s a much more interesting way to weight the basket of currencies you might use.