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In international finance, a world currency, supranational currency, or global currency is a currency that would be transacted internationally, with no set borders. The US dollar served as the global reserve currency since the Bretton Woods Agreements, but is no longer the sole global reserve since 1971 and its uncoupling from gold.
After Mexican Independence in 1821, the Spanish dollar continued to be used in many parts of the Americas, together with the Mexican Peso from the 1860s onward. The Mexican peso, the US dollar, and the Canadian dollar all trace their origins back to the Spanish dollar. This also includes the use of the caduceus sign ($), also known as the dollar sign.
The Belarusian ruble is pegged to the Chinese renminbi, Russian rouble and US dollar in a currency basket; instead of the renminbi it was pegged to the euro until December 2022.]] In the period following the Bretton Woods Conference of 1944, around the world were pegged to 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 following the Smithsonian Agreement in 1971, most currencies around the world have no longer been pegged to the United States dollar. However, as the United States has the world's largest economy, most international transactions continue to be conducted with the United States dollar, and it has remained the de facto world currency. According to Robert Gilpin in Global Political Economy: Understanding the International Economic Order (2001): "Somewhere between 40 and 60 percent of international financial transactions are denominated in dollars. 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", as compared to about one-quarter held in euros (see Reserve Currency).
Some of the world's currencies are still pegged to the dollar. Some countries, such as Ecuador, El Salvador, and Panama, have gone even further and eliminated their own currency (see dollarization) in favor of the United States dollar.
Only two serious challengers to the status of the United States dollar as a world currency have arisen. During the 1980s, the Japanese yen became increasingly used as an international currency, The Japanese Yen as an International Currency Retrieved 24 November 2023 but that usage diminished with the Japanese recession in the 1990s. More recently, the euro has increasingly competed with the United States dollar in international finance.
As with the dollar, some of the world's currencies are pegged against the euro. They are usually Eastern European currencies like the Bosnia and Herzegovina convertible mark, plus several west African currencies like the Cape Verdean escudo and the CFA franc. Other European countries, while not being EU members, have adopted the euro due to currency unions with member states, or by unilaterally superseding their own currencies: Andorra, Monaco, Kosovo, Montenegro, San Marino, and Vatican City.
, 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. A 2016 report by the World Trade Organization shows that the world's energy, food and services trade are made 60% with US dollar and 40% by euro.
On 23 March 2009, Zhou Xiaochuan, then-President of the People's Bank of China, called for a replacement of the US dollar with a different standard using "creative reform of the existing international monetary system towards an international reserve currency," believing it would "significantly reduce the risks of a future crisis and enhance crisis management capability." China presses G20 reform plans. BBC News, 24 March 2009. Retrieved 25 March 2009. Zhou suggested that the IMF's special drawing rights (a currency basket then comprising dollars, euros, Pound sterling and yen) could serve as a super-sovereign reserve currency, saying that it would not be easily influenced by the policies of individual countries. Then-US President Barack Obama, however, rejected China's call for a new global currency. He stated, "As far as confidence in the US economy or the dollar, I would just point out that the dollar is extraordinarily strong right now." Obama rejects China's call for new global currency . AFP, 25 March 2009. Retrieved 25 March 2009. At the G8 summit in July 2009, Dmitry Medvedev expressed Russia's desire for a new supranational reserve currency by showing off a coin minted with the words "unity in diversity". The coin, an example of a future world currency, emphasized his call for creating a mix of regional currencies as a way to address the 2008 financial crisis.
On 30 March 2009, at the second South America-Arab League Summit in Qatar, Venezuelan president Hugo Chavez proposed the creation of a petro-currency. It would be backed by the huge oil reserves of oil-producing countries. Chavez's successor, Nicolás Maduro, in 2018 announced the Petro cryptocurrency, but it does not appear to be used as a currency.
Advocates, notably Keynes, of a global currency often argue that such a currency would not suffer from inflation, which, in extreme cases, has had disastrous effects for economies. In addition, many argue that a single global currency would make conducting international business more efficient and would encourage foreign direct investment (FDI).
There are many different variations of the idea, including a possibility that it would be administered by a global central bank that would define its own monetary standard or that it would be on the gold standard. Supporters often point to the euro as an example of a supranational currency successfully implemented by a union of nations with disparate languages, cultures, and economies.
A limited alternative would be a world reserve currency issued by the International Monetary Fund, as an evolution of the existing special drawing rights and used as reserve assets by all national and regional central banks. On 26 March 2009, a UN panel of expert economists called for a new global currency reserve scheme to replace the current US dollar-based system. The panel's report pointed out that the "greatly expanded SDR (special drawing rights), with regular or cyclically adjusted emissions calibrated to the size of reserve accumulations, could contribute to global stability, economic strength and global equity." UN panel touts new global currency reserve system. AFP, 26 March 2009. Retrieved 27 March 2009.
Another world currency was proposed to use conceptual currency to aid the transaction between countries. The basic idea is to utilize the balance of trade to cancel out the currency actually needed to trade.
In addition to the idea of a single world currency, some evidence suggests the world may evolve multiple global currencies that exchange on a singular market system. The rise of digital global currencies owned by privately held companies or groups such as Ven suggest that multiple global currencies may offer wider formats for trade as they gain strength and wider acceptance.
WOCU currency, based on the WOCU synthetic global currency quotation derived from a weighted basket of currencies of fiat currency pairs covering the top 20 economies of the world, is planned to be issued and distributed by Unite Global a centralised platform for global real-time payments and settlement.
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