‘When it comes to a new international money to replace the dollar, if it be replaced within the near-term future, I find it impossible to fasten on to a firm prediction… The safest prediction is that there will be another transitional period, like that between the world wars, after which a new continental or national leadership will emerge.’ · The evolution of any civilized society is dependent on the discovery of the idea of money, and on the discovery of something that can be used as money. The future of any civilized society is dependent on the quality of what is used as money. · The US dollar has been the dominant currency in the aftermath of the Second World War. · Currently the US dollar is facing stiff competition from the Euro. The fiscal year 2002 has witnessed the depreciation of the US dollar against the Euro. · The internationalization of a currency begins when an individual agent or institution residing in a country other than that of this currency accepts or uses it as a medium of exchange, unit of account or store of value. · One of the main factors in establishing a currency’s international importance is its use in trade transactions i.e. its use as a vehicle currency. There are two types of vehicle currencies — those, which serve as media of exchange in goods exchange and those, which serve as media of exchange in currency exchange. · A reserve currency is one, which is widely held in international central bank reserves. The dollar is currently the dominant reserve currency. · The chronology of many dominant world currencies is as afore- mentioned. Byzantine gold nomisma (in the fifth-seventh century), followed by the Arab Dinar (mancus or marabotin, eighth-twelfth century), the Florentine fiorino (thirteenth-fourteeth century), the Venetian ducato (fifteenth century), the UK pound sterling (sixteenth century till the Second World War) and the US dollar (from the Second World War). · It would not be wrong to state that that Gold is money. Gold is money because it fulfills, to an extent unmatched by any other physical commodity (Silver comes closest), all the pre-requisites of a money. · Trade in primary commodities shows a stronger pattern of using a single national money as the main currency of invoice. Exports of homogeneous primary products such as oil, wheat, and copper all tend to be invoiced in dollars, with worldwide price formation in a centralized exchange. · Trade in primary commodities shows a stronger pattern of using a single national money as the main currency of invoice. Exports of homogeneous primary products such as oil, wheat, and copper all tend to be invoiced in dollars, with worldwide price formation in a centralized exchange. · Prior to the advent of the Euro, most of the intra-European trade had the US dollar on one side of their transactions. Subsequent to the introduction of the single currency — Euro, all intra-European invoicing is being prepared in Euro. · It is difficult to explain the persistence of the dollar as international money in the face of competition from other national monies such as the newly created Euro. A possible explanation is that international money is both necessary and a natural monopoly. In the absence of a purely non national international money such as gold, world financial and goods markets will naturally pick one national currency to be at once the inter-bank vehicle currency.
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Paper provided by EconWPA in its series Macroeconomics with number
0309010.
Length: 19 pages Date of creation: 06 Sep 2003 Date of revision: Handle: RePEc:wpa:wuwpma:0309010
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Find related papers by JEL classification: F1 - International Economics - - Trade F2 - International Economics - - International Factor Movements and International Business
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