Creating a Global Currency

As the US dollar gradually loses its status as the reserve currency of the world, the idea of a global or world currency becomes more appealing. Especially to the strong nations who have an opportunity to be represented in a basket of currencies more stable than US dollars or Euros (which are currently utilized as the 25% of the world's reserve currency). The United Nations has called for a new reserve currency, the International Monetary Fund (IMF) has been vocal as well. In February of this year, Dominique Strauss-Kahn (Managing Director) proposed a new reserve currency. The creation of a world currency has become quite popular in the upper levels of finance and politics, though it has been done before.

The IMF issued for the first time in 1970, the Special Drawing Right (SDR), which is defined by the IMF as: an interest-bearing international reserve asset created by the IMF in 1969 to supplement other reserve assets of member countries. From 1970-1972 and from 1979-1981 the IMF issued SDR21.4 billion worth of SDRs. In August of 2009 the IMF supplied SDR161.2 billion followed by SDR21.5 billion in September, 2009.

The SDR interest rate is currently 0.31%. The SDR is roughly 34.7% Euro, 13.5% Japanese Yen, 8.9% Pound Sterling and 42.9% US Dollar. One SDR is about $1.50.

We here at the National Economist believe the demand for SDRs will increase this decade and a new issuance is likely a year or two away. The SDR may be restructured at that point and the Chinese Yuan, Russian Ruble and Indian Rupee will likely be added to the basket. With a string of debt crisis after debt crisis leading to currency crisis after currency crisis, I would not be to surprised to see the SDR be a well diversified basket of six or more flawed fiat currencies by 2020. This in effect will be a global unit or world currency comprised of the major currencies perceived to be the strongest.

The IMF in concert with the G20, G8, World Bank, WTO (World Trade Organization), BIS (Bank for International Settlements), FATF (The Financial Action Task Force), OECD (Organisation for Economic Co-operation and Development) and central banks around the globe will give us this world currency, unless a new body is created.

The transition of power and consolidation of wealth that has taken place in the last decade was nearly unfathomable but the stale air in the bubble remains, only it is much bigger than before. The entire world seems to be at an impasse if it's market participants refuse to realize one simple fact; the supposed value of all derivatives far exceed fair market value of all goods, real estate, stock, bonds, gold and currency in the world... by over 500%.

Governments have prevented a drastic deflationary correction, for the most part through quantitative easing, and volunteered to pay it all back with interest, just as soon as the economies of the major nations "recover". This presupposes that they will recover in time not to have the debt service costs they incur in the process decimate the chance for fiscal sustenance. If a true recovery spurred by the market does not occur until 2016, the United States could easily double its debt if the world accepts it's good faith and low rates for the duration... which is possible but not likely.