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Miscellaneous

International Currency (Part 1)

Today USD is considered as an international currency. However this was not always the case.

Older International currency
1. Denarius (silver coins issued by the Roman Empire) First stuck in 211 BC was in trade till 275 AD. The coin weighed 4.5 gms in silver. The legions of Rome provide stability and its widespread empire provided liquidity/acceptability to these coins. Its influence went beyond the borders of the Roman Empire and even today many Islamic country use the word Dinar for their currency.

2. Ducat: it weighed about 3.5gms of gold and was issued by Venice in 1140 AD. Till the time Venice was the center of trade, Ducat remained the measure of gold and wealth. Even in Merchant of Venice (Shakespeare), the loan was given in Ducats. Mediterranean has always been the center of exchange of goods between Asia, Africa and Europe. Since Venetian Galleys ruled the water there the currency was widely accepted.

3. Soon after the discovery of the New Worlds and the Passage to Asia via Cape of Good Hope Italy’s influence in the world trade declined. The center of international trade and finance shifted to Spain and then Finally to England (because of its widespread colonies). Pound Sterling hence became the currency of choice. All other currency were pegged against Gold or this currency.

4. Dollar: Dollar’s rise to supremacy was not smooth. Early dollars were issued by the merchant bank (and not the US Government) Hence it was not uncommon for an individual owning 10-15 different issues of dollars each valid in different states. Even after the Civil War when US government started issuing dollar, the currency initially failed. Till 1932 there were 2 dollar the Green paper (fiat money) and the Gold Coin. The exchange price of the two were determined on the basis of gold prices. It was only after the World War 1, when the European government owed US huge sums of money that Dollar Supremacy was established. The Fact that Fort Knox had at one time almost half the known bullion in the world further strengthened US Dollar’s position as the international currency of choice.

 

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News

India Borrows from World Bank

I was reading this news about india borrowing an additional $518 million from World Bank. Now my question is:
1. Eternal debt has already led to Pakistani currency being rated as a junk currency. Indian currency has a BB rating and any additional debt would only force Moody’s or S&P to further lower it.

2. India already has a huge forex reserve (251 USD) why does india not use it? Anyways that cash is lying idle and not earning as much interest.

If India wants to play a bigger part in the global economy, it should help World bank and other international agencies help countries suffering from stagflation, and not borrow from this pool.