WORLD CURRENCY

What is World Currency?...

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.

An alternative definition of a world or global currency refers to a hypothetical single global currency or super currency.

It is produced and supported by a central bank which is used for all transactions around the world, regardless of the nationality of the entities involved in the transaction. No such official currency currently exists.

In the period 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. Since the collapse of the fixed exchange rate regime and the gold standard and the institution of floating exchange rates most currencies around the world have no longer been pegged against the United States dollar. However, as the United States remained the world's preeminent economic super power ,most international transactions continued to be conducted with the United States dollar, and it has remained the fact world currency.

For decades the dollar has also been the world's principal reserve currency; in 1996, the dollar accounted for approximately two-thirds of the world's foreign exchange reserves.

The dollar continues to dominate global currency reserves, with 63.9% held in dollars, as compared to 26.5% held in euro's. 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. As with the dollar, quite a few of the world's currencies are pegged against the euro.

As of December 2006 ,the euro surpassed the dollar in the combined value of cash in circulation. The value of euro notes in circulation has risen to more than 610 billion , equivalent to US$800 billion at the exchange rates at the time.

Advantage of global currency:



Many argue that a global currency would make conducting international business more efficient and would encourage Foreign Direct Investment(FDI).

Have you ever thought the difficulties of World Currency.?

Limited additional benefit with extra cost ` Some economists argue that a single world currency is unnecessary, because the U.S. dollar already provides many of the benefits of a world currency while avoiding some of the costs .If the world does not form an optimum currency area, then it would be economically inefficient for the world to share one currency. Economically incompatible nations ` In the present world, nations are not able to work together closely enough to be able to produce and support a common currency. There has to be a high level of trust between different countries before a true world currency could be created. A world currency might even undermine national sovereignty of smaller states.

Wealth redistribution ` The interest rate set by the central bank indirectly determines the interest rate customers must pay on their bank loans. This interest rate affects the rate of interest among individuals, investments, and countries. ` The interest rate set by the central bank indirectly determines the interest rate customers must pay on their bank loans. This interest rate affects the rate of interest among individuals, investments, and countries. Usury ` One of the largest religions in the world, Islam, bans usury, called riba. An interest-free world currency may prove to be unsolvable, if religious views concerning interest do not moderate.