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What Is Super Currency?

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  • Written By: Mary McMahon
  • Edited By: Shereen Skola
  • Last Modified Date: 22 November 2016
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A super currency is a global currency that can be used as a means of exchange, backed by an assortment of reserve currencies from several nations. Also known as a supranational or global currency, it can be used to denominate international financial transactions and participate in a variety of other financial activities. Proposals to consider such a currency were brought up on several occasions in the 20th century, and flared into discussion again during the financial crisis of the early 21st. Economists arguing for and against the use of a super currency have considered a number of potential benefits and pitfalls.

Some currencies, like the US dollar and the Euro, can act effectively as supranational currencies. While the US dollar is ostensibly the unit of currency used domestically in the US, it is also widely utilized for international trade transactions. Considered highly stable, it can also be used as an index or reference point for financial reporting, exchange rates, and related activities. This currency, however, is not backed by a basket of reserve currency from a number of nations, but only by the Federal Reserve in the United States.

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Critics of the US dollar’s dominance in international financial markets pointed out that using it like a super currency could potentially be dangerous. When the value of the dollar fell in response to financial pressures in the early 2000s, this jeopardized a range of financial transactions. Nations like China expressed unease about the dollar’s standing and suggested that it might be time to consider creating a formal super currency. These calls were echoed by the government of Russia and some economists who supported their arguments.

The Special Drawing Rights (SDRs) used by the International Monetary Fund under the Bretton Woods Agreement have been floated as a possible basis for a super currency. They already establish a basket, an assortment of mixed currencies from member nations, used as the basis for a reserve currency. Using this framework, it might be possible to create a global currency with a framework for accountability.

Proposals for a super currency have been countered by concerns about the possible effect on inflation. The consequences of introducing a true global currency could also be unexpected. Problems within the Euro zone during the financial crisis of the 2000s also illustrated some of the pitfalls involved in using common currencies for financial transactions and accounting across national borders.

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