Why all the talk about a new currency?

I’m lost here.  According to this article, and a bunch of others like it, we need a new international currency to protect little countries (like NZ) and relatively undeveloped countries.

There are two ways of taking this:

  1. Using the US$ as a sole reserve currency is too risky, we need a basket of currencies.
  2. We need to fix some exchange rates.

The first justification is ridiculuos, as nations choose to use the US$ as a reserve currency – it isn’t forced upon them.  If they want to instead hold reserves in a “basket of currencies” then they can.

The second justification is also something I disagree with.  The exchange rate is a price, and a return to Breton woods style fixing of exchange rates merely implies that we aren’t letting the market express the appropriate price between countries.  This would not matter if prices INSIDE a country were perfectly flexible – but since they aren’t fixed exchange rates lead to a misallocation of resources.

As a result, what is the point?

  • Miguel Sanchez

    The point is that a new international currency would require a new international central bank to administer it. Ever notice how all these “fixes” for the global financial system proposed by bureaucrats involve giving more money, jobs and power to, well, bureaucrats?

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  • Dollar is not as powerful as it was some years ago due to the financial crisis US is going through these days so it is not a bad idea to have some other currency as an international standard.

  • USD is pretty much the world wide standard anyway, even in places such as the UK, we still use the USD when dealing with anyone outside of the UK.

  • I tend to use the USD as a default currency as I have worked for clients all over the globe. I thought it would be easier to have a set rate in one currency.

  • Raf

    The problem isn’t letting markets express the appropriate price, the problem is that the market is a casino as opposed to an expression of trade and investment flows.

    If we took leverage out of the market you may find it works more efficiently and expresses a price that makes some sense based on current account numbers, ppp and other fundamental measures.

  • Miguel Sanchez

    Raf, it doesn’t help that much of that ‘leverage’ comes from certain central banks creating more of their currencies out of thin air, and selling it to keep their exchange rates artificially low. The US dollar’s inability to adjust lower against the yuan means that it’s had to be artificially low against everything else to compensate. Again, I don’t see how introducing another central bank, aimed at further distorting the market, is supposed to cure this.

  • Actually the advantages of having the same currency will not be able to outweigh the disadvantages of loss of effiency of abolishing the current diversified currencys and constructing a new whole system.