THERE are many opinions regarding the issue of currency, and the problems and defects in the world’s monetary system has begun to be noticed. After the global financial crisis broke out in 2008, Zhou Xiaochuan, governor of the People’s Bank of China had suggested a reform of the international monetary system.
The downfall of Lehman Brothers caused the global liquidity and international trade to be suspended, highlighting the inherent vulnerabilities and implicit systemic risks of the international monetary system.
Zhou proposed to create an international currency that would be isolated from the economic conditions and interests of any country to develop a “super-sovereign reserve currency” to overcome the “intrinsic risk of a sovereign credit currency”.
Paola Subacchi, director of the International Economics Department of the Royal Institute of International Affairs, expressed her view in her book, The People’s Money: How China Is Building a Global Currency, that in the global history it is a rare exception to have a single currency based on a country’s economic and military forces in the second half of the 20th century.
Billionaire financier George Soros agrees with Zhou. When Soros was in China in 2009, he thought Zhou had a unique understanding of the financial market. The United States took advantage of the US dollar being the main currency and the Chinese renminbi (RMB) could become a stronger currency.
He agreed that a special joint currency could be formed by several currencies, including the RMB, though there was still the problem of converting to another currency.
A currency is a financial unit that reflects the political order equivalent to the geopolitical strength of a country and it is not wrong to say that a superpower will have a super-currency. No one questions the status of the pound and the dollar.
Studies on the history of currency show that currency is strongly influenced by geopolitics. Gold is the only super-sovereign currency in the world. In the era of the gold standard, on the surface currencies were still hedged to the monetary system of gold where the monetary value per unit is equivalent to a certain amount of gold.
In reality, this is only a theoretical value and changes were done based on geopolitical influence and the authoritarian rule. This had led to a serious currency crisis. After that, many countries gave up the seemingly unrealistic gold standard; first it was the British pound followed by the US dollar. Thus, the world entered the era of the geo-currency, also known as the dollar era.
The main issue is the realisation of the value of super-sovereign currencies in the global market. The pound was once strong because of the existence of the British Empire; the strength of the dollar was due to the hegemonic position of the United States after the war. Therefore, it was a fundamental trend that the so-called “super-sovereign currency” would be replaced by the geo-currency.
The key is the demand for capital. Capital is actually a function of space and needs space to digest. Capital will have a major crisis once it leaves space. Modern geopolitics in reality is geo-capitalism. There is a strong currency motive behind the space, and the ability to dominate or control the market space is the real foundation of currency.
This brings us to the question, will there be an era without a superpower? For example, when a superpower is defeated, the world will descend into chaos. Will the era of regional alliances emerge? This is possible, but under such a condition, there is not much value in a super-sovereign currency because the artificially created “walls” that impede global transactions will exist in a more visible way. The value of the super-sovereign currency will also become relatively small and exist in a certain area, like the unstable euro.
A more pessimistic forecast is that, with the serious regression of globalisation, regional currencies will only be used in international smuggling (like in Iran and North Korea) and similar shadow economic activities. This would mean that the significance of a super-sovereign currency would be lost.
Another real problem is whether the transactions on the Internet, especially the free trade in the virtual world, will evolve into de facto super-sovereign currencies?
It should be said that the Internet has indeed led to certain freedoms, including free trade. However, this type of free trade is also strongly influenced or controlled by geopolitics. The Internet is still under the influence of state control and cannot break through the boundaries of geopolitical factors. Now with currency digitisation on the Internet, like blockchains and crypto-currencies, it has become more like a token akin to chips in a casino.
The reality and trend of geo-currency cannot be changed. Even if the digitisation of currency is popular in cyberspace and the world is introducing legal virtual currency, this is a digital distortion of geo-currency which will not be equivalent to a real super-sovereign currency.
In summary, super-sovereign currency can only be a dream of the free world. The future still belongs to geo-currencies. Geo-currencies can be destroyed by geopolitics or they can be replaced, but they will not disappear.
The writer is founder of Anbound Think Tank in 1993, now ANBOUND chief researcher and one of China’s renowned experts in information analysis. Most of his outstanding academic research activities are in economic information analysis, particularly in the area of public policy