Global Currency

Global Currency

The financial crisis of 2007 shed light on the collapsing United States economy and questioned the reliability of the dollar as a stable reserve currency.Historically international trade has relied on the United States dollar as the standard for global currency. However, as a result of the ongoing financial crisis, the United Nations, as well as numerous individual countries, such as China and Russia, has suggested the dollar should be replaced as a reserve currency. The United Nations believes that a single country reserve system, such as the dollar, contributes to weakened economies, global instability, and global inequity.

But if not the US dollar, then what? Flaws and risks of the dollar as a reserve currency include that a paper currency, such as the dollar, can be devalued quickly due to the threat of inflation. To insure a stable international economy and for global economic progress, the UN has asked individual countries to propose possible solutions.

In 2010, the United Nations Department of Economic and Social Affairs (UN-DESA) proposed two possible solutions to the reserve currency situation. The first is a multi-currency reserve system, which would allow for several different reserve currencies. In March of 2008, China suggested the dollar could be replaced by an International Monetary Fund (IMF) pool consisting of dollars, Euros, yen, etc.India, Brazil, and Russia also suggested a replacement for the dollar as a reserve system. The second proposed solution is a reserve system based on a true international liquidity, which would expand the role of special drawing rights (SDRs). One UN recognized advantage of this would be that countries not have to have copious amounts of reserves on their own. Clearly, the global currency issue is ongoing and must be addressed immediately.

Questions to Consider:

Can we avert the next dollar crisis?

Will any of the proposed solutions provide stability throughout the international market? What is the next step the UN needs to take in order to solve this problem?

Does an organization that can manage real exchange rates between countries exist?

Sources:

Conway, Edmund. “UN Wants New Global Currency to Replace Dollar.” Telegraph.

Sep. 7, 2009

UN-DESA. Policy Brief No. 27. Can we Avert the Next Dollar Crisis?

“UN Panel Touts New Global Currency Reserve System.” Brietbart. March, 26, 2008.

Tirone, Jonathan. “UN Says New Currency is Needed to Fix Broken ‘Confidence

Game.’” Bloomberg. Sep. 7, 2009.

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