Toady US dollar is the sole primary currency used to measure National Output, Exports/Imports, Forex Reserves, etc, etc… . Of course it is the major currency ruling all over the globe. But the question is how long…???
China raised its concerns over U.S. dollar being the primary reserve currency for long, but is lacking support to make an overhaul. The so called existing SDR probably may not be the right choice to replace U.S. dollar, because Special Drawing Rights were created way back in 1969.
As we know One SDR was defined as having a value of 0.888671 grams of gold, the value of one US dollar at that time(Ref: Wikipedia). In the early 1970's SDR was redefined in terms of a basket of currencies. Today, this basket is composed of Yen, US dollar, British Pound, and Euro, and the proportion each of these four currencies contributes to the nominal value of a SDR is reevaluated every five years. For the period of 2006-2010, One SDR is the sum of 0.6320 US dollars, 0.4100 Euro, 18.4 Japanese Yen and 0.0903 Pound Sterling (Ref: Wikipedia).
I agree to the point of revaluation of SDR every five years, but not the constituents of it.
So, I suggest the following for a Global Reserve Currency:
The reserve currency need to be a composition of different currencies like SDR, and suggest the following criteria
1. The currencies involved should represent the ever changing Global Economic Environment
2. Top nations by GDP/GNP output be chosen and given fifty percent weight age to the GDP value
3. The remaining weight age be given to the global trade, that is countries by Trade (i.e. Imports + Exports)
4. The score should be considered to decide the representative currencies in the Global Reserve Currency.
So the SCORE = 0.5*GDP+0.5*GLOBAL TRADE, whoever features in the top five to be considered for the composition of Global Reserve Currency.
The above formula should be fair one to determine the ‘Global Reserve Currency’ and to be reevaluated every five years or the period deemed to be fit.
There should be criteria for choosing the countries like the trade surplus or deficit should not be more than 4% of the GDP, which is thought to be one of the prime reasons for the present Global Recession creating Global Imbalances. The nation should follow free market economic policies to create a level playing field in the global environment. I think these criteria are long way ahead to be considered or fulfilled, as each country tries to be preserving their own interests rather than contributing to the global welfare.
These are my personal opinions and any suggestions/comments to the above are welcome.
