new global currency

NIILM-CMS, Mathura Road,MCA, New Delhi

New Global Currency .

or SDR’s

http://en.wikipedia.org/wiki/File:EUR_1_(2007_issue).png

http://en.wikipedia.org/wiki/File:United_States_one_dollar_bill,_obverse.jpg


Scope

• Dollar as reserve currency and falling confidence in it.

• Global currency» What?» Why?» By whom?

• Benefit with global currency.


Dollar as reserve currency

• How did dollar emerged as reserve currency?

• Bretton Woods Agreement of year 1944. Chief features of the Bretton Woods system were an

obligation for each country to adopt a monetary policy that maintained the exchange rate of its currency within a fixed value—plus or minus one percent—in terms of gold and the ability of the IMF to bridge temporary imbalances of payments.


Dollar as reserve currency

• When did dollar emergence as reserve currency?

• In the face of increasing financial strain, the system collapsed in 1971, after the United States unilaterally terminated convertibility of the dollars to gold.

• This action caused considerable financial stress in the world economy and created the unique situation whereby the United States dollar became the "reserve currency" for the states which had signed the agreement.


Why outcry against dollar ?

“The largest debtor is very unlikely to dominate any currency arrangement today”

- Ousmene Mnadeng (Head Ashmore IM)

Quadrupling of budget Deficit eroding 70% of Foreign Exchange reserve of world’s currency denominated in dollar.


Reactions

“We can not develop in the next 10 years if we do not create a new infrastructure including new currency systems”

- Dmitry Medvedev (Russian President)

“A more diversified international monetary system”

- BRIC leaders


“Better surveillance of the world economy is required .I have no doubt we’ll have an international monetary fund that looks more like an independent central bank”

- Gordon Brown (British Prime Minister)

“The outbreak of the current crisis and its spillover in the world has confronted us with a long unanswered question i.e what kind of intl. reserve currency we need to secure and eco. growth”

- Zhou Xiaochuan (China’s Central Bank Governor)


“The major part of India’s reserves is in dollars-that is something that is problem for us”

- Suresh Tendulkar (PM EAC)


Why America Wont like this………

• Because they issue cheques and can print dollars to cash these cheques.

• Supremacy in Danger


Global Currency

• What ?

• Why ?

• From whom ?


Global Currency

• Majority of international transactions take place.

• Which serves as the world's primary reserve currency.

Other names……..• World Currency and supranational currency


Why Global Currency ?


Benefits of a single Global currency

• Zero Transaction cost- trade becoming more profitable.(savings of $400 bn)

• End of Currency fluctuation and currency speculation.

• End of BOP, Current Account & Global Imbalances problems for currency areas.

• No need to maintain international reserves of other currencies.(underproductive usage)


• Zero manipulation by countries of their currencies.

• Increased International Trade.


From Whom?


• Europe• China• Russia• Japan• IMF - SDR


SDR’s

• Basket of major currencies used in international trade and finance.

• The United States dollar, the euro, the Japanese yen, and the pound sterling.

• the relative importance of the currency in international trade and finance.


Why not Euro?

• Reluctance of ECB– improvement in Eurozone’s exports.

• Limited role in global monetary affairs.• Fragmentation of policy making in financial

area- lack of financial depth w.r.t to U.S .• Poor long term growth prospects– expectation

of easing of interest rates by ECB.


Other probable currency

• Yuan – yet to become a fully convertible currency.

• Rouble– Russia yet to implement RTGS.• Yen– Japanese Economy still to recover.• SDR– basket of currency (dollar -44%,Euro-

34%,Yen-11%,Pound-11%)


Why dollar depreciating?

• Trade deficit• Fiscal deficit • High inflation• Negative real interest rate


Thank You !

new global currency

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