Fiat Currency and its Role in the Global Economy Essay

Fiat Currency and its Role in the Global Economy - Essay Example While the Bretton-Woods conference had proposed a supranational currency this idea was ignored and instead international currencies were pegged to the United States dollar. In the 1970s the United States went off the gold standard, effectively moving all world currencies to floating. There have been a number of attempts at supranational currency including the implementation of the SDR; still, there are some weaknesses to this currency, including it not effectively reflecting contemporary GDP concerns. In addition to the SDR there was the ECU, the ASU, and the African Monetary Unit; in large part these currencies are or were ineffective as a world currency for their largely regional affiliations. Recognizing the inefficiency of these currency units the WDX Organisation Limited was established to develop a more effective world currency. Incorporating modern risk theory, mathematics, and real-time technology infrastructure this organization developed the Wocu. In addition, the Wocu a ma jor innovative aspect of the Wocu is that it implements a research-based algorithm that is unknown to outside sources. b) Specification of thesis – main point The main thesis is that the Wocu is both effective and necessary as a world currency in response to the current fiat model. ... This will allay concerns with the dollar as the world currency, allow countries to have their own monetary policy, and reduce the need for foreign currency reserves. Additionally, it will have benefits to corporate treasurer; these include reducing currency risk and hedging against volatility, as well as advantages in pricing sales and purchasing, settling transaction, risk management, and raising capital. c) Three supporting opinions/reasons There are a number of supporting perspectives on implementing a world currency. Perhaps the central thorough-put in these supportive arguments is the notion that the use of fiat currencies creates a currency environment subject to political manipulation and volatility. One such consideration has emerged from the United States Economic Report. This report indicates that the European Sovereign Debt Crisis has had an immediate impact on United States monetary policy ("Economic policy: Country," 2010). The report indicates that, â€Å"The ripple ef fects from the euro area’s public debt crisis have led market participants to expect a later start of rate hikes ("Economic policy: Country," 2010, pg. 12). While not necessarily negative, such an impact could conceivably be avoided through a world currency. While this report demonstrates the direct impact of fiat currency, other research has argued for much more profound implications. Ghosh, Roy & Bandyopadhyay (2011) quantitatively examined various elements that directly contributed to volatility in the Indian stock market. Their research revealed that currency volatility – a direct result of fiat money – had a significant impact on stock valuation. Al-Shibli (2011) goes as far as to argue that in abandoning Bretton-Woods and