Ivan Zhigalov
Those economists who closely monitor the situation around the US sovereign debt seem to share the same opinion: the US authorities do their best to prevent the world from creating an alternative global reserve currency.
Yet the situation around the US public debt is rather difficult:
The debt has nearly reached 100% of the national GDP. Let’s add the economic fever in the debt-ridden EU states and we will get a simple economic equation – more and more speculations about a new global reserve currency.
The future of the new currency: despite the weakening US Dollar, numerous experts around the world share the opinion that there won’t be any new global reserve currency in the near future. They confirm it by saying that in the past there were attempts to create another global currency but they failed. Another argument, which is more significant to our mind, is that most countries just won’t sacrifice their independence for the sake of economic and financial stability.
Global Reserve Currency: is it the only way out of the crisis?
There is another interesting thing. The IMF’s Special Drawing Right (SDR) is considered as an alternative of the global reserve currency.
However the SDRs circulate only inside the IMF while being an artificial means of payment. How do they determine the value of the SDR? The value is determined basing on the value of the currency basket composed of 4 major currencies: EUR, USD, GBP and JPY. It appears that the value of the SDR is partially determined by the US Dollar. Nevertheless, 2 years ago, China offered to use the IMF’s SDR as the basis for creating a new global currency. However, most experts say it is extremely difficult to realize the idea because the US Dollar makes up more than 50% of the currency reserves of numerous countries around the world, so they won’t be able to abandon USD. Consequently the USA will do its best to prevent those countries from handing their dollars over to the IMF. Another problem is the necessity to create a “gigantic” global bank, which can threaten the independence of numerous countries, including the US.
Russia tends to support the idea rather than rejecting it: the US Dollar has become unreliable. It loses its value almost every day. At the same time China is really concerned about the US Dollar as it owns the US debt liabilities to the amount of over $1 trillion!!! All the BRICS members support the introduction of a new global reserve currency. No wonder, if to take into account that the net GDP of the BRICS states is almost equal to the one of the US and EU combined while their debt liabilities are not so considerable. However, today’s situation shows that even in long-term perspective the BRICS members will probably be settling mutual accounts in their own national currencies.
Previously Canada, USA and Mexico wanted to surprise the world with “Amero”, a new currency of the North American Union. However the idea seems to have failed. At least we don’t see any “Amero” right now. On the other hand, if they had created such a currency, the USA would have instantly devalued its national currency, thus solving its debt problems.
The oil-exporting countries, including Saudi Arabia, Qatar, Kuwait, Bahrain and Oman, also wanted to create their own currency. The offer was discussed when the global crisis made crude oil prices collapse. But eventually the idea failed as well.
USD perspectives:
Numerous experts from the Department of studying Masterforex-V trading system note thatthe USD index is currently seeing a long-term downtrend. However, they warn that after coming out of the bearish sloping channel the price formed a bullish momentum of H8, which may turn out to be a reversal wave.
If the downtrend continues it will take the form of the “Hound of the Baskervilles” pattern of the same wav level. 72.86, last week’s low will act as a support level. If the “Hound” scenario is cancelled, the price will form the “moment of truth” pattern, while a bullish FZR of H4 will prompt a mid-term reversal in the form of the classic ABC pattern.
Ivan Zhigalov
