Currency Consolidation and Crises

In a recent article for the E-Commerce Times entitled “Monetary Unions: Are We on Our Way?” I talked about what I feel are the present dangers to the dollar and whether or not currency consolidation would reduce the risk of a dollar crisis.

For that article, I interviewed Morrison Bonpasse, the president of the Single Global Currency Association, and asked his opinion on currency consolidation and how it could help avert a currency crisis. (For the sake of full disclosure, I am on the international advisory board of the Single Global Currency Association.)

The Global Economy

In that same article, I referred to Clyde Prestowitz’ book, Three Billion Capitalists, and the book’s take on currency crises and currency consolidation. I then said: “Unfortunately, I wasn’t able to interview Prestowitz to get his take on all of this. If I am able to talk with him in the future, I’ll tell you his thoughts.”

Listen to Ted di Stefano (5:20 minutes)

Besides being a widely read author on economics, Mr. Prestowitz is also president of the Economic Strategy Institute, based in Washington, D.C. He also served as counselor to the Secretary of Commerce in the Reagan Administration.

Well, fortunately, I was able to catch up with Mr. Prestowitz and the following are his opinions on currency consolidation and currency crises:

Q: Where do you see currency consolidation heading?

A: What I sense right now is a lot of nervousness about the dollar and the beginnings of some shifting. Some central banks have shifted more of their reserves into euros, some central banks are kind of hedging — half euros, half dollars — and there is increasing talk of an Asian currency unit. I guess what I can imagine over the next 10 or 15 years is evolution of a system in which maybe oil or other international commodities are priced in a basket of currencies. It’s hard to see a complete shift away from the dollar just because there is not any other obvious alternative that kind of fits perfectly.

The euro is a bit of an alternative, and we’re seeing movement to the euro, but it’s not a perfect alternative. It has its own issues. So, that’s why I think maybe a basket is a more likely initial alternative.

Q: Do you see a single global currency on the horizon any time soon?

A: I don’t think so. I think that Japan is a candidate for consolidation somewhere. The Japanese have never wanted the yen to be a truly international currency. They’ve never allowed it to be. But, they are now increasingly in a situation in which the yen is a smaller currency. It might be a candidate for consolidation with another currency.

I’ve, upon occasion, proposed a new currency that we would call the den — the dollar/yen. Also, China is likely to become the world’s biggest economy in time. That would suggest a much bigger role for the yuan [the Chinese currency]. But China will have to get its banking system and its financial structure of capital markets in a more sophisticated form than they are now. I guess in the long term, I can see the yuan as a major currency, but not in any short to medium time.

Q: What about India and its emerging dominance? Where do you see India in this picture?

A: The Indian currency is a little different. India’s financial system is actually pretty sophisticated. And, the Indians are talking about going to much more open capital markets. India’s economy is also going to become the world’s second [largest] or biggest economy.

I can see the Indian currency as being a major international player. But again, in time — it’s not going to happen tomorrow.

Changing Times

The bottom line of my interviews of Clyde Prestowitz and Morrison Bonpasse, in my opinion, is that there are changes on the horizon for the dollar. To protect our dollar, we must balance our budgets, save more as a nation and borrow less.

The American people have always risen to challenges. I have no doubt that they will rise to this one.

Good luck!

Theodore F. di Stefano is a founder and managing partner at Capital Source Partners, which provides a wide range of investment banking services to the small and medium-sized business. He is also a frequent speaker to business groups on financial and corporate governance matters. He can be contacted at [email protected].

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