Alternative Reserve Currency

Sunday, July 4, 2010

Recently, read an article about Global reserve system - A Asian perspective by Asian Development bank

This seems to be in line with my thoughts, as why a weaker currency countries will continue to grow as compared to stronger currency like USD or Euro.

In the article, according to Barry Eichengreen, after World War II, when the United States accounted for the majority of the industrial production of the non-Soviet world, it made sense that the dollar was the principal unit in which exporters and importers invoiced and settled their trade, in which international loans were extended, and in which central banks held their reserves. But this situation makes less sense today when the US accounts for only some 20 per cent of the combined output of countries engaged in international transactions. Because habits die hard, the dollar continues to play a disproportionately important role. But simply because this is true today does not mean that it will be true tomorrow. Countries that trade with and borrow from the euro area will increasingly seek to hold euros as reserves. Countries that trade with and borrow from the People’s Republic of China will similarly seek to hold renminbi, if not today then in the not-too-distant future.

Somewhere, I read 18th century belonged to France/Germany, 19th to Great Britain, 20th to USA and 21st to Asia. Well, if you consider BRIC (Brazil, Russia, India & China) only Brazil, is away from others geographically. If RIC (Russia, India & China) can form a trilateral ally, then undoubtedly 21st century can belong to Asia.

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