WSJ Looks at Past Shifts in International Reserve Currencies
Written March 23, 2009 at 8:09 PM EST by Alex Chernomordin
A Wall Street Journal article following an essay released on Monday by China’s PBoC Governor Zhou that called for moving toward a “super-sovereign” reserve currency. The article had the following highlights:
- One obstacle to a new reserve currency is political in the sense that the country with the dominant currency might be reluctant to give up the advantages that come with that status.
- In the prior shift from one reserve currency to another in the modern era (from the British pound to the dollar) unfolded over a series of decades.
- According to economists, to start a new global reserve currency will require someone effectively subsidizing the cost of bringing buyers and sellers together for the time it takes the currency to gain traction.
- Some believe that a super-national currency has no natural constituency or home where it can gain gradual acceptance.
- The European Currency Unit (ECU) was created as a unit of account in 1979 and never gained great acceptance, until a concerted effort from European policy makers transformed it into the euro two decades later.
- The article notes that the euro, remains a distant second to the dollar in international usage.
- Also, the global financial crisis has exposed the strains inherent in a shared currrency.
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