April 2, 2009

Just A Reminder

Before you get all paranoid about the prospect of a global reserve currency, which is an idea recently proposed by China and seconded by Russia, take a step back and ask yourself this: what was the gold standard, if not an establishment of a troy ounce of pure gold as the basic unit of international reserve currency?

Back when we were on the gold standard, banks would sometimes literally have to walk gold around from one bank to another, but pretty much no one walked around with ingots of gold -- they used paper and coin money, sometimes made of gold but often not, to represent larger amounts of gold held elsewhere. Consumers didn't buy and spend and earn gold. They bought and spent and earned money.

No one is talking about a "world currency," something which would be legal tender in every nation. They are talking about a unit of exchange that governments and banks would use only amongst one another. Right now, they generally use U.S. Dollars (but are increasingly using Euros) for that purpose. But since we're devaluing the dollar at such an alarming rate, it's hardly surprising that some people are wondering if there can't be an alternative.

So let's just all calm down about this, okay? The dollar isn't going anywhere. And we wouldn't be talking about a new reserve currency if the U.S. government had been listening to me all along and tried to find a way to solve our financial problems within our means instead of trying to spend our way out of a deficit and trying to borrow our way out of debt.

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