Tuesday, March 24, 2009

Call for new global reserve currency is premature

US Dollar is the currency in which many countries hold their foreign reserves. Due to the FED decision to purchase treasury bonds and due to recent the fiscal deficit, trading partners; especially, China is wary of US Treasury Bonds (also of US $).

Oil trades in US $. Exports trade in US $. US $ is free float. Ruble is volatile. Chinese Yuan is float within a narrow band. Many countries have tied their currencies to US $ due to its history and stability.

Current US fiscal deficit and rise/fall of US $ is a short-term phenomenon. US is blessed with the bounty of nature, innovation, free market and entrepreneurship to overcome the deficit and balance budget.

Let's analyze Euro. Euro has gained in strength since its inception (was equivalent to $0.84 and ended above $1.50 last year), has lost strength after the global economic crisis. UK has thus far remained outside of Euro. Euro is a global currency in a limited scale (within the Euro zone). Has this alleviated the problems of the member countries? No.

A new global currency is not something the world needs. World needs to rid itself of the toxic assets and get back to the path of growth. That is what is truly needed.

No comments:

Post a Comment