Dmitri Lysenko
On May 3rd in Astana, Kazakhstan, the 4th international economic forum was opened. Experts from 80 countries of the world arrived to take part in the event, including 8 Nobel prize winners.
During the opening speech the President of Kazakhstan Nursultan Nazarbaev pointed out the urgent need for a global currency reform. For a couple of years he has been promoting the abandonment of the US Dollar as the global reserve currency.
and Market Leader have analyzed Nazarbaev’s offer, trying to define whether there is an opportunity to create a new global reserve currency (or to use another existing currency for that purpose) in the near future.
What is so negative about the Dollar?
Nazarbaev is sure that the current global reserve currency is not democratic and lawful, preventing the world from solving global problems, distorting macroeconomic principles and restraining the economic growth:
· The US Dollar is a de-jure international monetary unit. No international community or organization has ever made a formal decision to use the currency worldwide.
· The USA is the emitter of the global currency, which is not democratic. The imbalance of supply and demand is in favor of the USA, which gives the country an unfair competitive edge over the rest of the world: The US consumes about 40% of the global GDP while producing much less of it. The difference is covered at the expense of the uncontrolled process of printing more paper dollars.
· Currently the global currency market is dominated by the US Dollar while the global community cannot control the emission.
· Responsibility and reliability should be the key features of any global reserve currency and its emitter. However, neither the US nor its currency qualify.
· The problem is that if most countries abandon the US Dollar or restrain its use as an international payment unit, the US authorities will announce a default, refusing to recognize all the dollars circulating outside the country.
According to the Department of studying Masterforex-V trading system , the USD index is in a long-term downtrend. The price has already come out of the bearish sloping channel and has formed a bullish wave of H8, which may turn out to be a reversal momentum. If there is a bearish FZR of H8, the downtrend will continue in the form of the “Hound of the Baskervilles” pattern introduced by Elder/MF. In this case the low of 2008 (71,345) will act as a support level. If the “Hound” scenario is canceled, there will be “the Moment of Truth” pattern and a bullish FZR of H4, which will make it possible to consider a mid-term reversal through the correctional ABC pattern against the long-term downtrend.
USD index:
What could replace the Dollar?
Indeed, Nazarbaev is right: the global currency should be emitted either by all the counties of the world or by some institution unanimously approved by the entire world. He realizes the current situation and doesn’t urge to abandon the US Dollar right now. However, the regional currencies can be introduced to be used until the global currency problem is solved:
· Just a month ago the BRICS agreed to use the national currencies of China, Russia, Brazil, India and South Africa for mutual settlement and lending.
· The Bolivarian Alliance uses its own regional currency called SUCRE.
· Russia suggests introducing the Russian Ruble as the regional currency for the CIS states.
However, Nasarbaev doesn’t agree with that as he is sure that using a country’s national currency as a regional one will eventually lead to the same problem that we can see now.
The “father” of Euro and a Noble prize winner Robert Mandell says the IMF could create 2 currency zones, with each of them having its own center of financial stability.
Nazarbaev suggests creating a new world currency under the sponsorship of the United Nations. Angela Merkel agrees with him, promoting the foundation of some kind of a UN economic council, which would be engaged in solving numerous problems in the global economy and international trade and developing the mechanism of emitting a new global reserve currency.
Is it the right time?
2 years ago when President Nazarbaev urged to create a new global currency, the IMF politely rejected the idea, saying that fundamental research was needed in order to support the idea.
Moreover, numerous experts say that even though the US dollar doesn’t have economic support it enjoys “high political status”. As soon as the US and alliance started a military campaign against Muammar Kaddafi, the US Dollar started strengthening against other currencies. Shortly after Osama Bin Laden was eliminated by the US marines, the US Dollar showed some strength once again. However, it is obvious that nowadays too many countries want to put an end to the Dollar epoch. The global community is still tolerant towards the US Dollar, but the patience may be at an end at any moment, should the US government make a wrong political decision. In this case numerous countries of the world may become increasingly motivated to introduce international or regional currencies.
and Market Leader would appreciate if you could share your opinion on the matter at Masterforex-V forum for traders and investors:
When will the world abandon the US Dollar as the global reserve currency?
· After the next global crisis
· When the regional currencies (like Euro, Yuan) become strong
· It is not going to happen in the near future
Dmitri Lysenko
