Financepeer Official

Mar 15, 2021

4 min read

Issues with Global Currency


Recognizing the essence of the world economy is a significant and fascinating subject for politicians and academics alike. This article summarizes two recent assessments of various facets of the expanding society. The author summarizes research on world currencies and trade networks, offering information into how each region’s proposed research could change in the upcoming months.

The role of one or maybe more “global currencies” in the international financial system has long been recognized by analysts. It is when two parties participate in a commercial or financial transaction using a third currency (usually the US dollar) instead of one of their properties. Initially, it was more focused on the world financial side, with discussions of absurdly high privilege or the “Triffin Dilemma.” Today, there is much literature based on the concept of ‘original sin’ in respect of currencies preference for lending. Economists have increasingly begun to focus more on the possible use and consequences of financial assets in a trade. The US dollar plays an outsized role in exchange payment processing, as Gopinath (2016) and many have recorded.

Various Issues :

The reasoning is that if a value is set in dollars, a decline in the export market economy makes absolutely no difference to the actual fee quoted by the distributor. As a result, the lower the exchange elasticity, the more dollar invoicing is used. However, in a recent Flemming lecture, I try a different view, pointing out three ways wherein depreciation of the currency continues to help export markets. To begin with, just and we’ve seen a price in dollars does not mean it is ‘sticky’ in US dollars. It may simply represent how simple it is to post rates and/or commingling in a globally accepted currency. Export markets will also ‘move through’ the currency depreciation to both the price they offer in dollars.

Second, even though markets do not change in dollar terms, a weakening of the exchanges’ currency about the dollar will increase exporters’ sales and earnings by one-to-one in local currency aspects. When firms’ levels of productivity and varieties of goods vary, for example, this will prompt others to begin selling and others to release extra variations for sale.

Third, if exporting companies are foreign business ‘profit-takers,’ and production is limited, an increase in domestic currency values causes the company to produce more at the current market value. This may be the situation for regional economies that depend on the world market. But that may also be accurate for many ‘standard’ businesses that aren’t industry leaders and have a small market share.

Another topic where the decentralized market is a catalyst of systemic reform is exchange channels. The standard opinion, as expressed in international standard finance analysis, was that broader international trade implied more vulnerability to disasters, and therefore more uncertainty. However, the scientific proof was inconsistent on this.

When a nation becomes more flexible to trade, it will be more specialized in respect of the value it produces and sells while still diversifying its trade arrangements. For example, throughout the early 1990s, the Finnish market underwent a significant transformation: its exports became even more focused on a single commodity (mobile phones), while its trade patterns changed.

It will be impossible to develop effective checks and balances on a global central bank in the absence of a federal Europe. The Federal Reserve of the United States is legally separate, but it is essentially a creation of Congress, one that may get abolished at any time. While the European Community’s fledgling government agencies are still in their infancy, they do have some oversight of the European Central Bank. At the global stage, no parallel agency can exist for the coming years.

Though the currency is a public utility in its use as a form of currency, there are many explanations why maintaining a certain degree of competition could be beneficial. Global currency rivalry keeps inflation in place across a variety of outlets. The natural regulation roles that a global federal reserve (or a sister agency) would have to perform are also a cause of concern. In an age of continuing financial progress, in which paper money can well-becoming obsolete, there are many reasons to worry that a global federal reserve can stifle creativity, either to retain a powerful hegemony or primarily due to misjudgment. These issues will exist in the new scheme as well, but they will get compounded by a currency union.


This current body of knowledge has a long way to go. Of note, this is just one face of the larger problem of global currencies. More generally, there is far more for research to explore, such as what factors influence exporters’ third-currency payment processing decisions, the effects of foreign currencies on the financial sector, and the factors that influence that currency to attain global status.

Despite the significant change, global economic trends continue to present new problems. Industrializing nations cannot be modeled as closed “island economies,” as professionals have long recognized. Many global trends are not identified by merely changing the shocks or elasticity of demand in current models.