There is a long debate in the financial and economic staffs whether it is possible to have a new global reserve currency that will change existing global geopolitical and economic correlations. In this analysis we will try to demonstrate whether this can happen.
This photo by Author: Agnico-Eagle, licensed public domain
Source: Agnico-Eagle Mines Limited
https://commons.wikimedia.org/wiki/File: Gold_Bars.jpg
The characteristics that a global reserve currency must possess.
What are the key features that make a (national) currency a global reserve currency?
1) In order to designate a (national) currency as a global reserve currency, a huge amount of this currency must be retained mainly by most central banks.
Essentially, the central banks of the countries are forced to withhold large quantities of this currency to use it,
a) in every kind of transactions (commercial, financial etc.)
b) in their interventions in the foreign exchange market to support their national currencies. In this way they can affect the exchange rate of their national currency.
c) in support of their countries if their countries issue a loan in this global reserve currency.
by Thanos S. Chonthrogiannis-https://www.liberalglobe.com
2) A currency becomes a global reserve currency when a large percentage of raw materials such as gold, copper, silver, oil, gas etc., and more generally other goods and rare raw materials are priced in this currency.
In this case, all the other countries to acquire these valuable raw materials and goods, will be forced to hold a significant proportion of this currency.
In this way, they will be able to acquire these crucial raw materials for their economy, while at the same time eliminating the currency risk of their respective transactions in their national currency.
In fact, the only national currency that meets the two basic criteria above and is therefore widely marketed on a global basis is the US dollar ($).
This is evidenced by the fact that 65% of all known foreign exchange reserves held by the Central Banks are in US dollars, while the second in this ranking is the euro (€) of EU with 20%.
Before responding to the chances of a new global reserve currency being displayed in the immediate or distant future in place of the US dollar, it would be very important to see how this currency ($ US) became the only reserve currency worldwide.
The advantages of the US economy after the end of World War 2 (WW2)
1) The US, as a state, they never experienced on their territory the two world wars and the suffering they caused. In this way, their infrastructures remained unchanged.
2) As an economy, the US economy through trying to win both world wars developed very quickly.
Given that to win as a country a war all national resources, the national industry and the development of war technology are being used and developed rapidly converging on the goal of universal prevalence over the opponent.
After the end of WWII, the U.S. economy in GDP size (Gross Domestic Product) was three times greater than the economy of the USSR that had been destroyed in WWII. Without the financial and industrial assistance of the United States, the USSR would not be able to win the 2nd World War.
In addition, the US economy (measured in GDP) was five times greater than the UK economy, which in G. Britain owed at least €250 billion to the US with the end of WWII.
That was the main reason why Britain could no longer finance and preserve its vast empire, now leaving the field free in the United States worldwide.
3) The US controlled 50% of the world’s industrial production and more than 70% of the world’s gold reserves.
These three key advantages presented by the US economy were mirrored in the value of its currency, the US dollar ($). These advantages of the US economy and combined with the forced withdrawal of G. Britain as No1 from the global geopolitical scene, made the US sovereign globally.
Given all this, the US defined some measures for the smooth operation and development of the then Liberal world. Some of these measures were:
a) The establishment of the International Monetary Fund (IMF) and the World Bank (WB) (Bretton Woods Agreement-1944).
b) G. Britain was in fact forced to abandon the system of imperial preference that it had imposed worldwide.
c) The US made their currency, dollar ($), as the only reserve currency in the world. Against the US dollar ($), they had to lock-peg all the remaining currencies of the countries of the then Liberal world.
The US dollar was linked to the value of gold in the current time demand. (Bretton Woods Agreement-1944). This agreement enabled several countries to support their national currencies for US dollars instead of gold.
Until this agreement has been reached by the Bretton Woods-1944, most countries applied the gold standard. In other words, governments exchanged their currencies based on the then current value of gold.
The application of the free-floating exchange rate system
After twenty-five (25) years of prosperity and continuous development in the then Liberal world, with W. Germany and Japan (the losers of the WW2) have been successfully rebuilt by the United States and constitute the main pillars of the world capitalist the US system, came the change of policy that agreed in Bretton Woods-1944.
In 1970, the signs of the accumulated high pressure that exercised to the economic power of the US are becoming apparent. Specifically,
1) The net (after tax) profit margins of the American producers decreased dramatically. This was due to decades of gradually growing German and Japanese economic and commercial power respectively.
But these reductions in the net profit margins of Americans became the main but not the only causes of deficit formation in the US trade balance.
2) The escalation of inflation within the US and in general the economies of the countries of the then Liberal world.
3) The monetary attack on the US dollar was mainly from France, which continually increased its gold reserves and followed an almost independent political course from the United States within the framework of the then Liberal world.
4) Countries started calling for gold instead of US dollars (the world reserve currency) they held, which US dollars held by all these countries wanted to exchange them for gold to fight inflation.
5) The fear of the United States not to turn the then Liberal world into the gold rule, since the USSR and South Africa were the main producers of gold worldwide and they could influence as they want the world economic policy of the then Liberal world by fluctuating as much the size of production as the value of the gold equally.
The then 37th US President, Richard Milhous Nixon (1969-1974), took the utmost measures to correct the problem for the benefit of the US economy.
The main financial measures were:
1) The US abandons the exchange rate system set in Bretton Woods-1944, interrupting the US $ dollar link to the value of gold.
2) Tariffs are levied on all imports of products into the US market.
3) Freeze of wages and prices.
4) The fixed exchange rate system is introduced without the convertibility of the US dollar to gold (Smithsonian Agreement-1971).
5) The free-floating exchange rate system (1973) is introduced.
The results of these financial measures in respect of the global reserve currency US dollar ($) was that the decoupling of the value of gold with the US dollar ($) enabled, on a long-term basis, greater freedom in the pursuit of economic US policy.
In 1973, the outbreak of the oil crisis worldwide, exacerbated the macroeconomic data of the US economy, increasing the prevailing recession in the US economy and causing a drastic increase in inflation figures.
The new system of free-floating exchange rates did not help to improve the prevailing then inflation figures in the US economy. On the contrary, the phenomenon of stagnant growth has emerged with the simultaneous existence of inflation in the economy (Stagflation).
Could other currencies replace the U.S. dollar ($) as a global reserve currency?
In the current reality it is difficult to have another currency that will replace the US dollar ($) as a global reserve currency. Looking at the currencies that are potential candidates for this reason we will find that:
- The Euro (€)-European Union (EU)
The euro (€), which accounts for 20% of the well-known foreign exchange currency reserves, may look like the most likely candidate but with the current data is not.
Even if other countries or associations of countries e.g. BRICS, or countries like Russia-Iran-Azerbaijan, adopt the euro (€) in all their transactions, the euro (€) will not be able to replace the US dollar ($).
In order to stabilize the longevity of their currency as the only global reserve currency, the United States is implementing a very clever strategy that allows it to stand as the only superpower (in political, economic and military level equally).
By achieving control of the extraction, transport, liquification and distribution of natural gas and oil reserves in the Mediterranean basin, they succeed in adding new deposits of these critical raw materials to the world-wide available quantity of the same raw materials that are priced at US dollar ($).
The inability to have a common EU military defense and armaments policy, which would gradually make the EU a military superpower, makes it utterly weak to impose its ‘ wants ‘ on both its own ‘ backyard ‘ and on the world geopolitical chessboard.
The EU’s inability to impose on these new oil and gas deposits found on EU territory to be priced in euro (€), stabilizes the US dollar’s position as a global reserve currency.
- The Yuan-China
Since China achieves the annual global GDP of 50% to come from the Chinese economy, it will have achieved an important but not sufficiently decisive step towards making its currency-yuan as a global reserve currency in the future.
At the same time, critical raw materials and goods will must be priced globally in its currency in order to gradually achieve the yuan being used by most countries on the planet. The combination of these two (50% of annual global GDP being produced by China and many critical raw materials and goods being priced at yuan) could gradually render its currency of the global currency reserve.
In addition, China has a palpable weakness. China in its foreign exchange reserves has trillions of US dollars ($) positions (in cash and mainly U.S. Treasury bonds). If the US realizes that China will try to replace the US dollar with the yuan as a world trading currency, the US could increase the rate of issuance T-Bills and Bonds of U.S. Treasury to finance and support US debt.
In this case, artificially inflation would be created both in the US economy and in the global economy that would minimize the real value of the USD trillion reserves that the central Bank of China holds.
The one and only strategy that China has in this case is to gradually replace a substantial part of its trillion reserves in US dollars with gold. A strategy that can only be implemented in the long term.
- The Ruble-Russia
Although Russia is a military and political superpower and, on its territory, produces the highest percentage of existing raw materials (some of them producing in huge quantities), the economic difficulty does not allow it to impose the its currency-ruble as the world reserve currency.
But Russia’s strategy in trying to sobriety the Russian economy from the US dollar is very smart. In fact, Russia is gradually making massive sales of US government bonds and at the same time makes massive purchases of gold.
Given that both Russia and South Africa are the largest gold-producing countries in the world, Russia gains a significant lead if it produces gold. Linking the ruble currency to the value of gold will protect the Russian economy in the long term from any inflationary pressures.
The pricing of the raw materials in its currency-ruble, although it will give it a head start but all these elements will not be enough to make the ruble-world reserve currency. Annual global GDP will must also be produced by at least 50% from the Russian economy.
The likelihood of the emergence of a new World reserve currency
This probability will exist if the BRICS (Brazil, Russia, India, China, South Africa) which belong to, among other things, Russia as well as China and South Africa,
1) Join in a common political, economic and monetary union.
2) As Russia and South Africa will produce the largest gold reserve in the world together with the other countries that are the Union of BRICS,
3) China can gradually and massively sell the stocks of $ US trillion that it owns or manages to trade them for gold,
4) More than 50% of annual global GDP is produced by the countries that make up the Union of BRICS,
5) In view of the common monetary Union of BRICS, there is a central bank and a common currency in the territory of the BRICS for all kinds of transactions. This common currency is linked to the value of gold,
6) More than 55% of trade worldwide is controlled by the BRICS,
7) If a new bank like the World Bank and a financial institution such as the IMF is established and fully operational on behalf of BRICS, which can lend third countries through the new common currency of BRICS,
8) Raw materials produced by third countries other than those BRICS e.g. Iran, Azerbaijan, priced in the new common currency of the countries-BRICS,
Then and only then there is a high probability that this new currency of BRICS to replace the US dollar as a global reserve currency.
Of course, this will be achieved if the US and its allies remain inactive and do not implement another strategy to cancel the strategy of the countries that are BRICS.
What is this strategy for the US and the Liberal world?
To sum up, we can show the crucial steps of this strategy:
1) Political, economic and monetary union between the US and the rest of the Anglo-Saxon countries (Canada, Australia, New Zealand, UK) in the first instance with the introduction of a new common currency of different $ US dollar.
2) In the second phase, a common political, economic and monetary union must be created between the above described Union (see 1) together with the other two major global pillars of liberalism, the EU, Japan and Korea (N. Korea-B. Korea).
3) This huge common economic, political and monetary union will be a new global liberal market with a common monetary, economic and foreign policy respectively.
4) Pricing of raw materials and goods in this new currency of the unified Liberal world,
5) This new common currency of the liberal world will reflect
(a) The robustness of all these economies;
(b) but unfortunately, the debts of
As there is a restriction on the raw materials that our planet can produce and offer, the crucial role will be played in which union of countries will increase raw material reserves to an unlimited extent. The raw materials which will be priced on their currency.
The increase of raw materials reserves to an unlimited extent will only be achieved through the conquest of space, the colonization of other planets in our solar system as well as the possibility of extraction and transport on the earth at the lowest possible cost, critical raw materials from all other planets. The conquest of space therefore becomes essential for the prosperity of our planet.
Which union of countries will have the first and successful implementation of all these above-described strategies, will first establish its own new currency as a global reserve currency.
The ideal global reserve currency
The ideal global reserve currency will must be characterized by:
1) From long-term stability-to move within a preset corridor of exchange rates,
2) To minimize the weaknesses of national currencies due to their debts. It is impossible not to reflect the debts of countries in the currency because the capitalist system in all its forms is driven by borrowing-financial leverage,
3) To include the greatest possible participation of countries in a monetary, economic and political union;
4) The raw materials are priced in this currency as well as the raw materials that will come from other planets.
Perhaps our world will must realize first that it must go through the obligatory political, economic and monetary Union of countries that will dramatically reduce the total number of world currencies (today exist about 185 National currencies) in a very small number of available currencies worldwide and before pass in next and final stage of adoption of a single common world currency.
Thanos S. Chonthrogiannis
It is forbidden by the law of intellectual property in any way unlawful use/appropriation of the present article, with severe civil and criminal sanctions for the offender.
