Recently, there has been a lot of talk about creating a new world reserve currency. Currently, the US dollar is the world’s currency. When there is an international transaction, it is all done in dollars. Lately however, all of this is changing. As of last week, China has expressed their belief that a “super-soverign currency” should be created in order to replace the dollar as the world’s currency. More recently, India has also expressed this concern.
Suresh Tendulkar, who is the chairman of the Indian Prime MInister Economic advisory council, has recently come out publicly saying that he agrees with china’s position. He is urging the Indian government to stop holding its reserves in dollars.
Along with China and India is Russia. Russia has decided that it too will cut the dollar from their reserves as well. With all this talk about creating a new world currency, what does this do for the dollar?
Well recently, the dollar has been pretty weak due to our economic situation. In the long run, however, creating a new world currency that totally displaces the dollar can be a nightmare for our country. When we say that we are borrowing money from china, we literally mean that China is buying our debt at treasury auctions. Now, if there is a new world currency, there isn’t much incentive for other nations to invest into the United States. All of this seems a bit scary, but I am willing to bet that nothing will happen anytime soon. The G8 will be meeting this week and you can bet that this will be something that Obama has to deal with.
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