World currencies evolved from gold to the US dollar and now include the euro, yen, and yuan. They are used by investors and governments to overcome barriers to foreign trade. Critics suggest a single global currency to replace individual currencies, but opponents argue it disempowers national economies.
A world currency typically refers to a specific currency used by investors and others to conduct international trade. World currencies evolved from gold in the mercantilist period of the 16th century to the US dollar in the 20th century. These currencies are held in reserve by businesses and governments to overcome barriers to foreign trade. The nations that are responsible for printing the world’s currencies are often seen as possessing monetary hegemony or control over the global economy. Critics of monetary hegemony have suggested a single global currency to replace currencies printed by individual nations.
The evolution of the idea of the world currency has depended on the changes of power throughout history. Gold was considered the world currency for European and Asian traders in the 16th century. The rule of the British Empire from the 17th century was responsible for the rise of the British pound. This global currency was slowly replaced by the US dollar after the end of World War II in 16. World currencies since the mid-20th century have included the European Union euro, the Japanese yen and the Chinese yuan.
International traders and investors often seek out world currencies to avoid the fees associated with currency trading. The euro, for example, may be held by an international stock exchange that deals primarily with European companies. Investment firms that handle transactions for popular commodities like oil, gold and coal often conduct business in a world currency. National governments with weak currencies can conduct their business in a world currency provided by a stronger national economy. All these world currency holders are interested in quick and cheap transactions without complicated currency exchanges.
An economy that prints a frequently used currency can benefit in several ways from this status. Widespread use of a currency often encourages trade deals in new markets. Extensive use of a world currency can streamline stock purchases, corporate acquisitions, and other investments made by the currency provider. International agencies and exchanges using world currencies can enable national leaders to influence the global economy. This informal guidance may include looser lending rules from international banking groups and fee reductions from regional governments.
This state of affairs has not been popular with economists concerned about a nation effectively controlling global trade. These opponents of monetary hegemony usually argue that a world currency disempowers most national economies. An alternative suggested by critics in the late 20th century was the “supranational” currency which would eliminate the currencies printed by individual nations in favor of a single currency common to all nations. This single currency, according to its supporters, would eliminate the manipulation of individual currencies and fluctuations in exchange rates.
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