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Every now and then there is a prediction or discussion over the role of dollar as the world’s reserve currency and whether Euro will be able to displace dollar as the world reserve currency in future.
Dollar gained the status of world currency immediately after World War Two (WWII) by replacing Great Britain’s pound due to Britain’s bankruptcy and the folding up of its imperial presence around the globe.
Dollars status as the world currency was due to three reasons. First, United States emerged as the leading industrial power and producer of goods, infrastructure and services after WWII. Second, by the end of WWII, US population was trailing behind only China and India, thus providing a large internal market for its products, thus giving it freedom from export dependency.
Third, US was self sufficient with large reserves of energy, metals, water, agricultural land and immensely industrious and talented people.
So if Euro wants to emerge as the next World Currency, it will have to overwhelmingly exceed the United States in all three metrics; population, industrial output, energy and metal self sufficiency.
Euro is currently circulated among 330 out of 500 million of European Union’s population, not overwhelmingly greater than 308 million Americans. Eurozone’s industrial output is roughly the same as US, and Eurozone is heavily dependent on Middle-east and Russian energy resources, whereas US has large coal, petroleum and other energy reserves in Gulf of Mexico, Alaska and friendly Canada.
If Euro wants to become a world currency, it will have to bring in all of Europe including Great Britain, Russia and other Eastern European countries within the Euro currency zone. This will help Euro expand to roughly 700 million people using the Euro for everything from a prepaid credit card to purchasing goods and services, it will have a much larger internal market for goods and services and thanks to Russia, it will be self sufficient in energy and metal resources to feed its industrial base, consumer and infrastructure markets.
Until then, Dollar will remain the global currency.
