Super Currency Explained- Meaning and Long Term Prospects

What Is a Super Currency?

 

It is a hypothetical global currency backed by a basket of reserve currencies maintained at the International Monetary Fund (IMF) and serves as the foundation for a new global monetary system. 

 

In practice, it would be a hypothetical global currency or supranational currency. The concept, which China and the other BRICS (Brazil, Russia, India, China, and South Africa) countries have promoted, has regained popularity due to the catastrophic financial crisis of the past. 

 

A super currency is a term that refers to a worldwide monetary system that includes a currency that is widely acknowledged all over the world, such as the United States dollar.

 

The concept of a super currency is based on the assumption that it will stabilize global financial and commercial transactions while also encouraging economic stability throughout the world.

 

The International Monetary Fund's special drawing rights (SDRs) are the closest thing the world has ever come to having a super functional currency. Despite several proposals for such a currency. However, because institutions only use these SDRs, they are not widely acknowledged.

 

(Related Blog: What is the Federal Reserve System?)

 

Concept of Super Currency

 

It would be necessary to develop super currencies to displace the existing dollar-dominated economy. Many people believe that the increasing frequency of global financial crises has been caused by the failure of the Bretton Woods system of fixed but adjustable exchange rates in 1971. 

 

They also believe that the end of the Cold War can be attributed to this system's failure because of the system's volatility. It is widely accepted by many economists including Nobel laureate Joseph Stiglitz and financier George Soros, which represents a fundamental shift in the world's economic expansion.

 

The economist John Maynard Keynes proposed a supranational world currency known as Bancor to promote global monetary stability as early as the 1940s at the Bretton Woods conference. 

 

The concept, on the other hand, failed to capture the attention of the general public. It was later replaced with a gold-backed monetary system, which was finally established in its place as an alternative. 

 

Following the Bancor wiki, the Bancor money would have been used to pay for international financial transactions . It would have been used in international trade activities. Because of the global financial crisis that occurred in 2008, additional interest in the notion was aroused. However, the concept did not acquire popularity again in the following years due to the crisis.

 

 

Replacing the U.S. Dollar System

 

The United Nations Conference on Trade and Development (UNCTAD) advocated that a new global currency be developed in 2010 to replace the United States dollar as the world's primary reserve currency. The United Nations General Assembly agreed with the recommendation.

 

It is proposed that the International Monetary Fund's (IMF) considerably increased pool of special drawing rights (SDRs) be utilized as the foundation for a global super currency that would contribute to "global stability, economic strength, and international equity.”

 

Regular or cyclically adjusted emission rates calibrated to the size of reserve accumulation are proposed.

 

As a practical fact, neither the United States, the European Union, nor China is willing to coordinate their macroeconomic policies or cede sovereignty to the amount required to make such a system function effectively. 

 

It is especially true when one considers the current status of the global financial system and the volatility of emerging market currency exchange rates. 

 

In addition to the European sovereign debt crisis—as well as the eurozone's zombie banks—as well as the history of currency crises and the countries that have attempted to maintain currency pegs and failed, such as the United Kingdom's pound in 1992, the Russian ruble in 1997, and the Argentinian peso in 2002, provide ample examples of how stressed and strained a financial system can become.

 

 

The Long-Term Prospects of Paper Money

 

According to most economists, paper money will not be phased out entirely in the foreseeable future or at the very least not in its current form. 

 

In reality, electronic transactions have grown in popularity during the past few decades, and there is no reason to suppose that this trend will not continue in the foreseeable future. 

 

Paper money transactions may become exceedingly rare even at this point - in fact, for some people, paper money transactions are currently highly uncommon!

 

For the time being, it's likely that what we think of as "paper money" will serve as a backup for our digital currency. 

 

Similar to how the gold standard previously acted as a backup for paper money during World Wars. To some extent, this is due to the way we have traditionally associated monetary value with paper currency. It makes even the prospect of such a future appear challenging to imagine.

 

(Related Blog: What is Fiat Money and how is it printed?)

 

The Future of Currency

 

After all, if we live in an alternate reality in which money's worth is exclusively determined by the value assigned to it, what is stopping us from transitioning to a completely digital currency system? 

 

A big part of the credit for the solution we have arrived at may be attributed to the work of our national governments.

 

We have witnessed the growth (and subsequent decline) of digital or cryptographic currencies, such as Bitcoin, during the past several years on the global stage. Some people are still perplexed about what we're all doing with the dollar, and it's understandable why they are so confused (or the pound, euro, yen).

 

It is unimaginable to think of a future in which digital currencies completely replace national currencies such as the dollar, despite the problems with preserving their value in the digital world. 

 

As a result, so long as governments continue to collect taxes, they will specify the currency in which those payments should be transferred to the proper recipient.

 

Until a single universal currency is established, we do not anticipate that the number of currencies will decrease as the world becomes increasingly globalized in the coming years.

 

Let us take the example of the petroleum industry. When a Canadian petroleum business negotiates with a Saudi Arabian petroleum company, the contract is negotiated in U.S. dollars or E.U. euros rather than Canadian dollars. The agreement is ratified in those currencies rather than in Canadian dollars.

 

If this continues, the globe may eventually reach a stage where only 4 or 5 different currencies are in circulation. It is a possible scenario. Without a certainty, we'll be fighting over standards, which is one of the most significant hurdles to broad-scale global reform.

 

(Related Reading: Introduction to Centralized Finance (CeFi))

 

Bottom Line

It is predicted that the number of electronic transactions will increase. Individuals will be less inclined to pay fees for these transactions in the future, increasing the number of electronic commerce.

 

The rise of companies such as PayPal and Square has proved that the search for and development of new, lower-cost methods of transacting with money online will continue in the future.

 

Even though paper money has shown to be less successful in many ways, yet it continues to be one of the most cost-effective forms of exchange because it is entirely free.