the dollar may no longer be the global currency

[jillian]

There's always the gold standard.

Hi Valerie. I claim zero expertise on this subject, but from what I've read, the gold standard isn't a good idea because, as a finite asset, it's deflationary. The economy would theoretically grind to a halt as people wait for the prices of goods and services to continue to drop.

Now, I don't know what our financial experts would think about that, but it is my understanding.

 

[Toro]

...the euro is nowhere near as stable...

Averaging $1.30 for the past half decade isn't stable? After steady growth from Y2K it's stayed level in the long run.

Whereas....

In 2000, $1.00 from 2008 is worth:
$0.80 using the Consumer Price Index $0.82 using the GDP deflator using the value of consumer bundle $0.79 using the unskilled wage $0.74 using the nominal GDP per capita $0.69 using the relative share of GDP

...Citation
Samuel H. Williamson, "Six Ways to Compute the Relative Value of a U.S. Dollar Amount, 1790 to Present," MeasuringWorth, 2008. URL <A href="http://www.measuringworth.com/uscompare/">http://www.measuringworth.com/uscompare/

$0.80 using the Consumer Price Index $0.82 using the GDP deflator using the value of consumer bundle $0.79 using the unskilled wage $0.74 using the nominal GDP per capita $0.69 using the relative share of GDP
$0.80 using the Consumer Price Index

$0.80 using the Consumer Price Index
Such is not lost on those that hold our markers. Especially the ones that make back their losses on our widening trade gap.

$0.80 using the Consumer Price Index $0.82 using the GDP deflator using the value of consumer bundle $0.79 using the unskilled wage $0.74 using the nominal GDP per capita $0.69 using the relative share of GDP
$0.80 using the Consumer Price Index $0.82 using the GDP deflator using the value of consumer bundle $0.79 using the unskilled wage $0.74 using the nominal GDP per capita $0.69 using the relative share of GDP

​

IXA

First, please use normal fonts. It is difficult to read what you wrote.

Second, the euro has fluctuated between $0.80 and $1.60. That is not stable.

But that's not what I meant. The political and economic structure of the EU is nowhere near as stable as the US, for many reasons.

 

[Iriemon]

There's always the gold standard.

A Very Brief History of the Gold Standard
If you would like to learn about the history of money in detail, there is an excellent site called A Comparative Chronology of Money which details the important places and dates in monetary history. During most of the 1800s the United States was had a bimetallic system of money, however it was essentially on a gold standard as very little silver was traded. A true gold standard came to fruition in 1900 with the passage of the Gold Standard Act. The gold standard effectively came to an end in 1933 when President Franklin D. Roosevelt outlawed private gold ownership (except for the purposes of jewelery). The Bretton Woods System, enacted in 1946 created a system of fixed exchange rates that allowed governments to sell their gold to the United States treasury at the price of $35/ounce. "The Bretton Woods system ended on August 15, 1971, when President Richard Nixon ended trading of gold at the fixed price of $35/ounce. At that point for the first time in history, formal links between the major world currencies and real commodities were severed". The gold standard has not been used in any major economy since that time.

What Do We Use Today?
Almost every country, including the United States, is on a system of fiat money, which the glossary defines as "money that is intrinsically useless; is used only as a medium of exchange". We saw in the article "Why Does Money Have Value" that the value of money is set by the supply and demand for money and the supply and demand for other goods and services in the economy. Economics, Neoclassical Macroeconomics - Articles prices for those goods and services, including gold and silver, are allowed to fluctuate based on market forces. Next we'll look at how the monetary system used can change other variables in the economy.

The Benefits and Costs of a Gold Standard
The main benefit of a gold standard is that it insures a relatively low level of inflation. In articles such as "What is the Demand for Money?" we've seen that inflation is caused by a combination of four factors:

1. The supply of money goes up.
2. The supply of goods goes down.
3. Demand for money goes down.
4. Demand for goods goes up.

So long as the supply of gold does not change too quickly, then the supply of money will stay relatively stable. The gold standard prevents a country from printing too much money. If the supply of money rises too fast, then people will exchange money (which has become less scarce) for gold (which has not). If this goes on too long, then the treasury will eventually run out of gold. A gold standard restricts the Federal Reserve from enacting policies which significantly alter the growth of the money supply which in turn limits the inflation rate of a country. The gold standard also changes the face of the foreign exchange market. If Canada is on the gold standard and has set the price of gold at $100 an ounce, and Mexico is also on the gold standard and set the price of gold at 5000 pesos an ounce, then 1 Canadian Dollar must be worth 50 pesos. The extensive use of gold standards implies a system of fixed exchange rates. If all countries are on a gold standard, there is then only one real currency, gold, from which all others derive their value. The stability the gold standard cause in the foreign exchange market is often cited as one of the benefits of the system.

The stability caused by the gold standard is also the biggest drawback in having one. Exchange rates are not allowed to respond to changing circumstances in countries. A gold standard severely limits the stabilization policies the Federal Reserve can use. Because of these factors, countries with gold standards tend to have severe economic shocks.

What Was The Gold Standard?

Yep and that same Gold standard induced the Fed to constrict the money supply and raise interest rates in 1930 to maintain the gold standard.

Think how good it was for the economy then. Then think how good it would be for the economy now.

A gold standard periodically subjects governments to speculative runs on the currencies. Which made speculators rich at the cost of taxpayers and businesses.

Major governments got off the gold standard for a very good reason. It sucks as a basis for controlling money supply.

 

[Iriemon]

U.N. panel says world should ditch dollar | U.S. | Reuters

please let this happen.....

then ....

boot the un off american soil....tear the thing down and sell it to a developer.....

cut off all foreign funding.....and invest in america.....after all it is our tax dollars they are passing out.....

close all our military bases.....no need to be the worlds police force anymore.....ploice america and it's borders....after all it is our tax dollars that is paying for the military.....

lets become the new switzerland.....

Can't. We don't have a tiny country surrounded by mountains that people will leave alone simply because its not worth messing with.

 

[InrXeyelArkvst]

IXA

First, please use normal fonts. It is difficult to read what you wrote.

Second, the euro has fluctuated between $0.80 and $1.60. That is not stable.

But that's not what I meant. The political and economic structure of the EU is nowhere near as stable as the US, for many reasons.

Again the Euro from the point it hit parity through 2004 simply gained (unlike, say, the Loonie's brief muscle ayear or so back) and despite any peaks and valleys has averaged $1.30 ever since. It's following the Law of Fives pretty well.

The US Dollar has done little but go down, and any short term gains do not negate that. There's no there left there to make it an attractive reserve anymore. The era of petrobuck recycling, spawned by the Smithsonian Agreement, has run its course.

​

 

[Gurdari]

please let this happen.....

then ....

boot the un off american soil....tear the thing down and sell it to a developer.....

cut off all foreign funding.....and invest in america.....after all it is our tax dollars they are passing out.....

close all our military bases.....no need to be the worlds police force anymore.....ploice america and it's borders....after all it is our tax dollars that is paying for the military.....

lets become the new switzerland.....

Sounds like if you can't be number one, you don't wat to play at all...

as for closing all those bases, the world would be thankful.

 

[morpheus]

The creation of a neutral global currency is a nice idea, but it&#8217;s just not realistic. I don&#8217;t believe the UN currently has the clout to control a global currency. So it looks to me like the dollar will remain the global currency&#8230; Unless China decides to change it, once she has all the dollars.

Thinking,

Most likely, the UN will have nothing to do with the proposed global currency. It would most likely be administered by the IMF, or maybe a new multilateral organization would be created.

Second, the euro has fluctuated between $0.80 and $1.60. That is not stable.

Toro,

You're not telling the whole story.

The Euro has been steadily gaining against the US Dollar since its historical low in 2001. Since 2004, it's hovered around US$1.30.

And you can't use the Euro-USD exchange rate to gauge the Euro's stability. By doing so, you're assuming that the US Dollar is stable, which is an erroneous assumption, given the past decade.

The Euro briefly reached a record high of about US$1.60 in 2008 and then came back down to its normal level of ~US$1.30. This happened because the US Dollar dropped significantly in 2008 (against many currencies) and then climbed back up. In other words, the US Dollar has been unstable the past several years, not the Euro.

http://www.ecb.eu/stats/exchange/eurofxref/html/eurofxref-graph-usd.en.html (Click "all" to see the currency's history from 1999).

This is precisely why the US Dollar's dominance is increasingly being questioned. Additionally, it's not necessarily the US Dollar's "stability" that causes its demand, but it's also the other way around. And in fact some prominent economists, like Paul Samuelson, have predicted its collapse. It's also widely understood that with the US being the most popular reserve currency, it allows the US to run trade deficits without serious consequences, giving the United States unfair advantages when it comes to international trade and settling debts. All these reasons are leading to calls for a neutral international reserve currency.

But that's not what I meant. The political and economic structure of the EU is nowhere near as stable as the US, for many reasons.

Can you name those reasons?

If anything, the European Central Bank (ECB) and European Union have significantly stricter fiscal and monetary structures than the United States.