1058 words free essay on the policy of Disinvestment

In the foreign exchange market and international finance, a world currency, supranational currency, or global currency refers to a currency in which the vast majority of international transactions take place and which serves as the world’s primary reserve currency. The US dollar, and euro to a lesser extent, is by far the most used currencies in terms of global reserves. Around 40 to 60 per cent of international financial transactions are denominated in US dollars.

Since the mid-20th century, the de facto world currency has been the United States dollar. For decades the dollar has also been the world’s Principal reserve currency and even today the dollar continues to dominate global currency reserves, with 63.9 per cent held in dollars as compared to 26.5 per cent held in Euros. While many of the world’s currencies are pegged against the dollar, some countries, such as Ecuador, El Salvador, and Panama, have gone even further and eliminated their own currency in favor of the United States dollar.

Since 1999, the dollar’s dominance has begun to be eroded by the euro, which represents a larger size economy, and has the prospect of more countries adopting the euro as their national currency. The euro inherited the status of a major reserve currency from the German Mark (DM), and since then its contribution to official reserves has risen as banks seek to diversify their reserves and trade in the euro zone continues to expand.

As with the dollar, quite a few of the world’s currencies are pegged against the euro. These include the Eastern European currencies like the Estonian kroon and the Bulgarian lev, plus several west African currencies like the Cape Verdean escudo and the CFA franc. Other European countries like Andorra, Monaco, Montenegro, San Marino, and Vatican City—while not being EU members, have adopted the euro due to currency unions with member states, or by unilaterally superseding their own currencies. In December 2006, the euro surpassed the dollar in the combined value of cash in circulation.

Prior to and during most of the 1800s, international trade was denominated in terms of currencies that represented weights of gold. Most national currencies at the time were in essence merely different ways of measuring gold weights. The emerging collapse of the international gold standard around the time of World War I had significant implications for global trade.

In the period following the Bretton Woods Conference of 1944, exchange rates around the world were pegged against the United States dollar, which could be exchanged for a fixed amount of gold. This reinforced the dominance of the US dollar as a global currency. During the 1980s, the Japanese yen became increasingly used as an international currency, but that usage diminished with the Japanese recession in the 1990s.

An alternative definition of a world or global currency refers to a hypothetical single global currency or super currency, as the proposed terra or the Dey (acronym for Dollar Euro Yen), produced and supported by a central bank which is used for all transactions around the world, regardless of the nationality of the entities (individuals, corporations, governments, or other organizations) involved in the transaction.

No such official currency currently exists and there are many different variations of the idea, including a possibility that it would be on the gold standard. Another variance suggested is the digital gold currency, which can be viewed as an example of how global currency can be implemented without achieving national government consensus. Another alternative is a world reserve currency issued by the International Monetary Fund, as an evolution of the existing Special Drawing Rights and used as reserve assets by all national and regional central banks.

In March 2009, as a result of the global economic crisis, China and Russia have pressed for urgent consideration of a global currency and a UN panel has proposed greatly expanding the IMF’s SDRs or Special Drawing Rights. The call for creative reform of the existing international monetary system towards an international reserve currency is being given to significantly reduce the risks of a future crisis and enhance crisis management capability.

IMF’s Special Drawing Rights, a currency basket comprising dollars, euros, yen, reals and sterling could serve as a super-sovereign reserve currency, not easily influenced by the policies of individual countries.

Notable among other proposals for a supranational currency is the proposal of Venezuelan President Hugo Chavez who proposed the creation of the Petro as a supranational currency, in order to face the instability that the generation of fiat currency has caused in the world economy. He suggested that the petro-currency should be backed by the huge oil reserves of the oil producing countries.

Advocates, notably Keynes, of a global currency often argue that such a currency would not suffer from inflation, which, in extreme cases, has had disastrous effects for economies. In addition, many argue that a global currency would make conducting international business more efficient and would encourage Foreign Direct Investment (FDI).

The counter argument is that a single global currency is unworkable given the vastly different national political and economic systems in existence. Also, a bigger currency area will generally have less chance of using interest rate to stabilize the economy, because different areas may be in different stages in the boom-bust cycle, and the interest rate setting must be a compromise between the interests of the different part of the currency area. There is also an argument that in the present world, nations are not able to work together closely enough to be able to produce and support a common currency.

A high level of trust between different countries is essential before a true world currency could be created. Further, a world currency has the risk of undermining national sovereignty of smaller states. Another problem which might prove unsolvable for a world currency is that Islam, one of the largest religions in the world, is against the idea of paying interest for loans.

However, the benefits of a common currency compared to the growing regional “common currencies”, would also be many. With the use of a Single Global Currency, there would be no more need for expensive currency exchanges. The need for expensive hedges against currency fluctuations would also be eliminated as currency speculation the risk of currency failures and balance of payment problems would become the things of the past.