For centuries, the monetary system is a complex and complicated name, there’s always a coin or two that stand out and have a significant impact on international economic and financial structure. The Greek drachma of the third century BC against the U.S. dollar in the 20 th century, a currency is increasing all the time to dominate the world monetary system.
An inherent feature of a significant international monetary stability. This depends on several factors, including Robert Mundell, an economics professor and Nobel laureate, said in 1998 a paper on the euro. Mundell has identified five factors that influence the stability of a single currency, namely: the size of the transaction domain, the stability of monetary policy, the lack of control, strength and continuity of the issuance of state and retreat.
1. Domain size of the transaction. Market size of the currency in circulation in the liquidity and the ability to withstand the financial crisis and the economy. German reunification in 1990, for example, has become a heavy burden on the economy that has almost caused the collapse of the latter. increased government spending must be financed by loans and the new German economy must be restored. The total cost of reunification would be € 1,500,000,000,000. Now imagine if that happened to the economy is much smaller than Malta. While Germany took less than two decades to recover, it will be a small country, much longer to leave the pit and the consequences will be far worse. Consider also that the currency used by 100 million people are without doubt the most liquid currency in circulation in the population of 10 million dollars.
2. Stability of monetary policy. A stable monetary policy involves a controlled inflation rate and not sudden and wide fluctuations in exchange rates. Another example of German history, hyperinflation of DM in 1920 provided almost no valuable that the new currency should be issued. Mundell said there are several ways to achieve a stable monetary policy. Focusing on a stable exchange rate would be best for the economy, opened near the small financial giants (such as Belgium and Germany). For larger countries, inflation would be a more effective way to ensure a sound monetary policy.
3. The lack of control. exchange restrictions imposed by the State in the purchase / sale of foreign currencies by residents or the purchase and sale of local currency by nonresidents. This restriction has been made possible by the International Monetary Fund for countries in transition, but it would be wrong to impose a currency that is intended to be heavily involved in international transactions. The change is not effective in the international monetary system, most, if inevitably.
4. The strength and continuity of the central state. Political stability is a prerequisite for monetary stability. In other words, a country’s currency collapsed, dragging with it any strong state to make way for a stable currency. Swiss franc, for example, is regarded as a currency of heaven for the political neutrality of Switzerland. U.S. military forces Also cited as important factors in maintaining dollar dominance.
5. reserve value. major currency in the past, it was a good thing for them: you can not make gold or silver. This is the value they fell. U.S. dollar equivalent to gold when the Bretton Woods institutions. Once converted to paper currency, the dollar’s strength depends on the reputation of the United States as a strong state and military superpower. Moreover, the main euro appeared before the deadline to make the return value.