By Robin Trehan
Since the beginning of currency, there has always been a “top dog” of the bunch. At any one time, there is always one dominant reserve currency for the world. There are lots of debates on which currency will be the next big thing and if there will one day be a one currency world. Today, the American dollar is the dominant currency, but a lot are speculating that the Euro may take its place. Forecasting this is very hard to do, so it will take time to see what the results will actually be. Some people don’t believe that the Euro will dominate the dollar, but will indeed share in its financial spoils. This in fact isn’t true because if you look back in history, all of the spoils go to the top dog.
The Euro will either succeed or it won’t. This shouldn’t let down fellow Europhiles because a lot of great and stable currencies are out there that aren’t international, such as United Kingdom, Japan, Switzerland, Sweden and Canada. Ironically, Germany during the postwar, tried to prevent their currency from becoming international.
Being a reserve currency, you get a high status that offers various spoils. For instance, when your currency is the reserve currency, you’re able to write cheques to pay for things (which hardly get cashed). This allows you to spend more money than you earn to a much farther extent than everyone else. The U.S. is doing just that and has been doing so over the recent years. They have exceeded national income by 20% over the past five years.
The majority of this money is being spent on technology, which began in the ‘90s. Today majority of the money is going towards tanks, bullets, pills and bailouts. This excess spending is something not many other countries have been able to do. Not many countries are able to sustain a deficit on external accounts at the high amounts that the U.S. has today. Those that have, end up paying very high amounts in premiums in order to borrow money needed. The U.S. on the other hand receives a discount.
All in all, it doesn’t look like the Euro will be replacing the dollar but maybe a basket of currenicies will soon a dollar a good run for money, at least any time soon. Over the years, who knows what can happen. There has been talk about a one world currency.
Robin Trehan is associated with the equity fund of Credit Capital Funding. More information www.creditcapitalfunding.com www.businesscreditfunding.com
