The Switch to a Global Currency

Adopting a line of reasoning extolled in the past by, among others, China and Middle Eastern oil exporters, International Monetary Fund (IMF) head Dominique Strauss-Kahn today noted that a global currency could potentially lend stability to the global financial system. Though such an idea has been discussed among economists and global financiers for years, calls for a global currency reached a fever pitch at times during the recent financial crisis as the US financial system came as close as it ever has to collapse. Notably, much of the world's trade is transacted with dollars, including the oil trade, and many nations with trade surpluses hold a significant portion of their excess funds in dollars.

Although the IMF already potentially has the accounting and recordkeeping functions in place to take on such a task, it remains to be seen if states would submit to the affront to sovereignty that such a system would necessitate. For example, several of the members of the EU were very weary of the switch to the Euro, and pseudo-member England remains outside the currency bloc. Addtionally, it is difficult to imagine the US buying into such a system, though the dollars floating around in Middle Eastern and Asian reserve accounts may be enough to initiate such a system without the direct buy-in of the US.

A global currency with a basket of existing currencies providing its foundation has some appeal. Most notably, it would fluctuate less than the individual currencies making it up, could work some way toward evening trade imbalances, and it would be less prone to economic shocks in individual countries. However, such a regime is difficult to fathom at this point, and is, in any case, a far way off.