US Dollar is the international reserve currency. Its the only currency used for oil trade. The monarchs sitting on 70% of the world’s oil reserve will probably not want to start thinking about changig the reserve currency or the oil currency from USD to Dinar or to gold. Thats too bad cos it could have made these tribal heads superpowers.
Russia, once a superpower, knows the importance of reserve currency and balance of payments all too well. It knows that a change in Russia’s reserve currency to its Ruble could make it a superpower once again. Here is an article from a Russian paper:
Russian Prime Minister Dmitry Medvedev has recently surprised the international business community by saying that the Russian ruble could become an international reserve currency in the near future. The current situation in the global economy suggests such a development. Experts tried to figure out to which extent it was possible and what the move could bring to Russia.
Historically, the U.S. dollar became the main reserve currency for the entire postwar period (during 1945-1980). Only after the establishment of the European Monetary System in 1979, with the mechanism of joint circulation of European currencies on the foreign exchange market, a second key currency emerged – the German Mark. However, its share in international operations did not exceed 30 percent.
The introduction of the euro did not significantly change the balance of power between the key currencies. According to the Bank for International Settlements, the share of U.S. dollar in foreign exchange transactions has not changed in the last decade and made up about 85-90 percent, analysts of News Forex said. Today, the major currencies playing the role of reserve currencies, are the U.S. dollar, the euro, the Japanese yen, the British pound sterling and the Swiss franc. They are used to conduct and serve trade operations, ensure the global movement of capital, express prices in foreign trade transactions and in exchange rates and to ensure the mechanisms of currency interventions.
The Swiss franc is not a currency of foreign trade, but it is used as a reserve currency, because Swiss banks have mobilized considerable funds and provide reliable placement of capital. In turn, the pound sterling, despite Britain’s declining role in the world markets, retains the reserve currency role, given the development of worldwide banking network of the country.
Ukraine’s leading trader Yevgeny Antipenko said that a country that issues reserve currency has to meet certain requirements too. In particular, they include the regime of free convertibility of currencies (on current and capital transactions), the relative stability of the exchange rate, a favorable legal regime for using the currency for non-residents both inside the country and on international currency markets, a high level of development of the banking and insurance systems, financial market infrastructures and the country’s leading positions in global economy and in the world trade.
The advantages of the United States, whose currency acts as the key reserve currency, are obvious. The orientation of the majority of countries on the US dollar allows the US to fully exercise international settlements with its own national currency at constant or even increased demand for the dollar as the world’s most common means of payment and savings.
Russia, in fact, can get a lot of advantages, for example, an opportunity to get cheap and unlimited crediting of the national economy due to the accumulation of reserves in other countries in this currency; to purchase large quantities of goods and services on foreign markets to avoid the chronic deficit of the balance of payments.
Russia would become a world power, and its finances would be equated to gold. The ruble would thus be in demand abroad. This would make international settlement much simpler. In any case, if the Russian ruble becomes a reserve currency in the world, Russia will obtain the superpower’s status with all pros and cons that go with it.
According to experts, if the US Federal Reserve confirms Russia’s accession to the circle of the countries whose currencies are considered to be international reserve currencies, then one can give the following recommendations for different groups of Russian citizens:
1. Entrepreneurs (12%) having bank deposits should increase the share of deposits in Russian rubles, because the ruble rate will grow as soon as its new status is confirmed.
2. Tourists traveling for vacations abroad will be able to use ruble Visa and MasterCard cards.
3. International payments and transfers between Russia and the rest of the world will become much more simple.
4. For the majority of low-income Russians, the status of the international reserve currency will not play any significant role.
A reserve currency is a currency of a country, in which central banks of other countries form and preserve their official gold and currency reserves. This is a narrow interpretation of the essence of a reserve currency, which means that technically any national currency could become a reserve one in case foreign central banks formed their reserves in this currency. In reality, the recognition of a certain reserve currency requires a complex of economic prerequisites.