I heard an interesting economist speak recently regarding currency and in particular what is required to be a Reserve Currency. There are three important requirements. First, the currency must float freely. The world won't hold a currency that is incorrectly priced. Second, there must be an active and legitimate bond market to set rates of interest. Third, and most interesting to me, a strong navy. In global trade there is an implied guarantee that goods held in a Reserve Currency will reach their destination unharmed. That is not to say a global Reserve cannot change, it just requires some doing. British Sterling met those standards in the 19th century, when she ruled the seas. Not so now. At present the Chinese Yuan is deficient in all three, the Euro is lacking in one. 





Speak your mind

2 Comments so far

  1. Bill Herrmann on September 24, 2013 11:31 am

    Very Interesting. I recently gave a lecture on Reserve Currency. Future lectures will include this note.

  2. Rob Liu on September 24, 2013 12:51 pm

    a dumb analysis that can only come from an economist. The EU does not have a common language nor a common culture. Today’s friends are tomorrow’s enemies and vice versa. The future is unpredictable.


Resources & Links