Super Currency

A super currency is a hypothetical global currency, or supranational currency, that would be backed by a basket of reserve currencies at the International Monetary Fund (IMF), and form the basis for a new global monetary system. The idea has attracted interest after the financial crisis, and has been promoted by China and the rest of the BRICS.

A super currency would replace the current U.S. dollar system, which many blame for the increasingly frequent global financial crises since the collapse in 1971 of the Bretton Woods system of fixed but adjustable exchange rates – because of its volatility. And many, like neo-Keynesian economist Joseph Stiglitz and George Soros, see it as a new direction for development of the global economy.

In 2010, the United Nations Conference on Trade and Development called for a new global currency to replace the U.S. dollar as the world's dominant reserve currency. As envisaged, a greatly expanded special drawing rights (SDRs) at the IMF, with regular or cyclically adjusted emissions calibrated to the size of reserve accumulations, would be the basis for a global super currency which would contribute to “global stability, economic strength and global equity."

But in reality, neither the U.S., the E.U. or China are ready to coordinate their macroeconomic policies or give up sovereignty to the degree that would make such a system work — especially given the current state of the global financial system and the volatility in emerging markets. To see how stressed and strained such a system can become, one need only look at the European sovereign debt crisis — and the eurozone's zombie banks — or the history of currency crises and the countries that have tried to maintain currency pegs and failed, like the British pound in 1992, the Russian ruble in 1997 and the Argentinean peso in 2002.

Despite all the predictions of the dollar's demise, the U.S. dollar will remain the world's reserve currency, however, many financial commentators talk about the rise of the Chinese yuan. It is clear that the U.S. is not going to willingly give up the petrodollar system. Perhaps the balance in world-money and power politics will shift once China gains economic parity with the U.S. and if the yuan becomes a contender to the dollar. Or perhaps there will be multiple global currencies in the future, that exchange on a single market system. In any case, for the time being, reserve currencies like the dollar, the euro, Sterling, the yen and China’s renminbi, effectively already act as supranational currencies.