Currencies

Currency systems

A world currency (also called ‘supranational currency’ or ‘global currency’) is a currency that is transacted internationally, without set borders.

The currencies that historically were or currently are considered as ‘world currencies’ are presented below:

Spanish dollar (17th – 19th centuries)

The 17th and 18th centuries were marked by the proliferation of Spanish dollars from the Spanish territories in the Americas westwards to Asia and eastwards to Europe; and thus the first worldwide currency emerged2. Spain's political supremacy on the world arena, the importance of its commercial routes across the Atlantic and the Pacific, and the quality of Spanish coins and purity of silver helped Spanish dollar become an internationally accepted currency for over two centuries.

Gold Standard (19th – 20th centuries)

Before and during most of the 19th century, international trade was denominated in currencies that constituted weights of gold. Most national currencies at that time were in fact merely different ways to measure gold weights. That is why some consider the gold to be the first global currency. However, the collapse of the international gold standard around the time of World War I had considerable implications for the international trade.

Pound sterling

Before 1944, the world reference currency was the pound sterling. Later, there was the transition from the pound sterling to the U. S. dollar.

U. S. dollar

During the period that followed the Bretton Woods Conference of 1944, exchange rates were pegged against the U. S. dollar, which could be exchanged for a fixed amount of gold. This strengthened the dominance of the U. S. dollar as a global currency.

Since the collapse of the fixed exchange rate regime and the gold standard and the institution of floating exchange rates following the Smithsonian Agreement in 1971, most currencies around the world were no longer pegged against the U. S. dollar. However, as the United States was and remains the world's leading economy, most international transactions continued to be conducted in the U. S. dollar, and so it remained the world currency.

There are only two serious menaces to the status of the U. S. dollar as a global currency. During the 80s, the Japanese yen became increasingly used in international transactions, but that trend ceased as a result of the Japanese recession in the 90s5. Moreover, the euro has recently started competing with the U. S. dollar on an international stage.

Euro

The euro inherited its status of a major reserve currency from the German mark and its contribution to official reserves was reinforced, for banks intended to diversify the reserves and trade in the eurozone expanded.

Some of the currencies are pegged against the euro. Other European countries that are not Member States have adopted the euro due to membership in currency unions, or replaced national currencies: Vatican City, San Marino, Montenegro, Kosovo, Monaco, Andorra.

Chinese renminbi

Due to the internationalization of the renminbi, it is currently the 8th most widely traded currency in the world.

World Agreements

Brettonwood

730 representatives from all 44 Allied nations gathered inHotel in Bretton Woods, New Hampshire, for the United Nations Monetary and Financial Conference, also known as the Bretton Woods Conference. The delegates deliberated during 1–22 July 1944, and signed the Agreement on its final day.

They have set up a system of rules, institutions, and procedures to regulate the international monetary system, the planners at Bretton Woods established the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), which today is part of the World Bank Group. These organizations became operational in 1945 after a sufficient number of countries had ratified the agreement. Some of the agreements were later canceled by Smithsons agreement.

Single world currency

Currently, an official single world currency does not exist.

Supporters, for example Keynes, of a single world currency often claim that such a currency would not be subjected to inflation. Moreover, they assume that a single global currency would make conducting international business transactions more efficient and would encourage FDI.

Advocates of the single world currency propose to adopt the euro as a supranational currency and justify their choice by explaining the successful adoption of this currency by a union of nations that differ one from another in terms of culture, language, economic structure, etc. An alternative option is to adopt the digital gold currency and cryptocurrency as a supranational currency, as the adoption does not require reaching the national government consensus.

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