There are at present (2009) three major world currencies, exchangeable for goods or other currencies anywhere. They are:

• the euro;
• United States Dollar;
• Japanese Yen.

Is the British pound one of them? Not really.

There is also the Swiss franc, but can it survive the restrictions on tax dodging?

These can be called "Hard" currencies.

For much of the 19th century the dominant currency was the Pound Sterling used throughout the British Empire. In Europe most other currencies were linked to it through a system of gold exchange. (Before the first world war the French, Belgian and Swiss Francs had the same value, as well as the Italian Lira and Spanish Peseta: in effect a European Currency Unit or ECU=£0/0/9.5d) The pound's value, however, came from the productivity of British industry. The weakness of the present inflated British pound (worth perhaps a hundredth of the former pound) comes from the recent poor productivity and organization of British industry.

Closed currencies
At independence in the 1960s most former colonial countries set up their own currencies and made it difficult for ordinary citizens to acquire hard currency. These soft currencies have often become worthless. The most spectacular example is the Soviet Rouble which moved from an official value of one rouble to the dollar, to several hundred within months, but other examples can be found in Ghana, Uganda and Zimbabwe and in Argentina, Brazil and Peru. In most of the former French colonies a unified currency, the CFA Franc, remained linked to the French Franc (now euro).

A new multi-national currency the East African Shilling may be about to come into being.

IMF
The International Monetary Fund exists to stabilize the world's currencies and economies. It did not operate within the communist countries which used quite different systems.

Is the IMF now a kind of World Government, ordering all countries to adopt its fiscal guidelines? Some observers believe that IMF policy results in increased poverty. The IMF leaders seem to believe in trickle down. Does it work?

In 2009 there are calls for the IMF to include on its board representatives from China, India and Brazil, as well as the western countries - that is to represent the creditors as well as the debtors.

EMS
Within the European Community the European Monetary System (EMS) was an association of Central Banks which attempted to stabilize the exchange values of the European currencies. It evolved into the single currency in 2000.

The British difficulty of linking its currency to the DM in the ERM seemed to be causing deep depression and loss of industry from a high exchange rate and high rates of interest (until the pound dropped out in October 1992). As the British pound then rose high against the euro the same seemed to be happening again. However, it is now the Germans who suffer under an overvalued currency (the euro)

In 2009 the pound has fallen against the euro.

There is a deal of argument about whether a Single Currency would make a weak economy even weaker, or even whether recovery would become impossible.) It is argued that in a Single Currency Area people must move, as in the United States, to the jobs. This may be impractical in a multi-national Europe. A consequence of this observation is that many small currencies may be useful. Now that the euro is in being we shall see how it goes.

It may well be that in future there will be a World Currency Unit to unite the three hard currencies. To some extent the embryo of this is the Special Drawing Right (SDR) of the IMF, intended during the 1970s to be an instrument of world expansion. Monetarist economists argued that this was a contributory cause of the subsequent world inflation. Others believe inflation was the result of the deficit war financing of the United States, both during the Vietnam war and during the Reagan arms race.

As the US has resumed (2000 onwards) its deficit financing and has a huge trade deficit, the dollar may fall against other currencies, perhaps in a spectacular degree - as happened during 2007, and even more in 2008 when the British pound declined in value against the dollar and the euro. (Perhaps when the pound reaches €1.0 might be a good time to join the euro system and adopt it as national currency.)

But is the euro doomed, as we watch the events of 2011?

New Currency?
An important development in 2009 is that the richer countries may have decided that as Britain and the United States are effectively bankrupt they will create a new world currency based on gold and require oil to be paid for in the new currency.

But there are good reasons to believe that this would not work (whatever Max Keiser thinks).

Interesting Reading
David Graeber - Debt, the first 5000 year


Debt:the first 5000 years

History of debt

Schulden: Die ersten 5000 Jahre

A history of money from the time of the Sumerians, and the need to cancel all debts every so often. Does it throw light on the present financial catastrophe?