Currency crisis looking ahead

February 6, 2010 by timbercommunity

PIIGS countries and BRIC countries...Currency turmoil is evident in the world. We are currently facing a full blown EU crisis in the PIIGS countries (Portugal, Italy, Ireland, Greece and Spain). Unfortunately the currency market is not working properly and there have been several initiatives. But how will it look 40-years from now?

The concern is evident in Greece that more and more turns like a greek tragedy. Public debt was 130% of GDP and it is obvious that Greece had manipulated government statistics to get themselves out of trouble! The Greek Prime Minister Papandreou has this week tried to reassure the international concern through the frozen wages, higher taxes and deteriorating pension conditions. If I understand things right they will program will be 9% of GDP over 3 years.

EU Commission report that Greece is in "guardianship" to the disastrous public finances should be stabilized. But Greece is not the only country that has serious problems. Individual EU Member States risk the EMU co-operation
with the irresponsibility of their finances. Italy, Spain and Portugal are other countries with similar problems in the Euro zone.

But not only old Europe is facing problem. Moody’s Investors Service reported earlier this weeek that the triple A sovereign credit rating of the US would come under pressure unless economic growth was more robust.It is about the deficit even if the official reported unemployment is 9.7 percent. 6th Feb 2010 each US citizen's share of this debt is $40,138.18. The National Debt has continued to increase an average of $3.88 billion per day since September 28, 2007. Source: US national debt clock.

Shift to emerging economies

But how will it look in 40-years from now?
Today, Asia is leading the world in terms of economic recovery from the crisis
according to IMF. The focus of the world will turnt to emerging nations such as Mexico, South Korea and the traditional BRIC countries like Brazil, Russia, India and China. The future estimatation year 2050 in GDP of the biggest countries (Source: wikipedia BRIC)

Estimated GDP 2050
China 70,710,000
USA 38,514,000
India 37,668,000

Gross Domestic Product per capita (nominal) 2050 according to wikipedia
USA 91,683
South Korea 90,294
UK 80,234
Russia 78,576
Canada 76,002
France 75,253
Germany 68,253
Japan 66,846
Mexiko 63,149
Italy 58,545
Brazil 49 759
China 49,650

The question is why the people in BRIC would like to accept this development when they get more and more influence in International Monetary Fund. During 2009 China increased their exchange reserves with 486 billion US dollar. The following table shows how the monthly Foreign Exchange Reserves for China increased during 2009.

Sources: State Administration of foreign exchange China Monthly Foreign Exchange Reserves 2009

Replacement of the dollar

In a radical report last year the UN Conference on Trade and Development (UNCTAD)concluded that the system of currencies and capital rules which binds the world economy is not working properly, and was largely responsible for the financial and economic crises. In the long run, this is a lengthy process and the long-term need for fiscal coordination.

But the critics is not new. In 1997, then Prime Minister of Malaysia Mahathir bin Mohamad proposed introduction of Islamic gold dinar as currency for international trade in the Muslim world. It was intended to replace the United States dollar and, as a gold-based currency, provide a medium of exchange more stable than the dollar.

There have been a lot of rumours about the petro-currency. The Gulf currency dubbed “Gulfo” is likely to track a global exchange basket and may float as a regional reserve currency in its own. “The US dollar has failed. We need to delink,” said Nahed Taher, chief executive of Bahrain’s Gulf One Investment Bank.“The Gulf monetary union pact has come into effect,” said Kuwait’s finance minister, Mustafa al-Shamali, speaking at a Gulf Co-operation Council (GCC)
summit in Kuwait. There is only one problem and that is that in the long run we will not be dependent on oil.

But how will a new currency look like?

Complementary currencies allows you to assemble or build a trading feature just as you imagine it. Most modern webservers have online payment gateways to services
like Paypal, Moneybrookers.com, Linkpoint, RBK Money, Webmoney, RoboXchang etc
There are several Digital currencys out in cyberspace like liberty reserve, loom digital currency system, pecunix digital gold system and perfect money...

The using of ecurrency will be the trend in the coming future just like credit card application before. Gamers have been using virtual currency for a long time and now legislators must pick up this phenomen. A ruling by the supreme court in South Korea has stated that virtual currency is the equivalent of real-world money.

There are different initiatives in this field for instance .One is backed by precious metal while e-gold is backed by gold. Maybe in the future we will have an ecurrency backed up by the forestry industry.