The currency diplomacy

Gone are the days when any currency was treated like a sovereign bond, the

intrinsic value, was determined by any precious metal like gold. In fact,

the logic behind backing any currency through a sovereign bond is to make

that currency more prominent and strong for domestic and international trade

and to support the stability of economies. In addition, the earlier Gold Reserve

was also being considered an important factor for the exchange of such

currencies by many countries. However, the major challenge is associated with

the regulation of such currencies, which remains in the hands of the central

banks of the nations. In fact, if we closely look at the events of the post-World War II period, it becomes quite clear that the hidden agenda of conceptualizing

various prominent institutions like the IMF and the World Bank was to promote

global dominance and colonization of developed economies through trade in

other war-affected and developing economies in the name of the development

of such nations.

Since many developed economies, including America and Britain, not only had

excess gold reserves but also balanced trade to a greater extent, As a reason,

such countries decided to make a currency basket, the main objective of which

was said to be to create a trade balance and ward off the currency rate fluctuation effect, but it turned out to be a strategic financial debt to those war-affected and developing nations. This agenda was planned to facilitate

companies and developed economies like America and Britain to revitalize their economies and expand their reach to other nations to gain undue advantage of trade benefits. It is notable that such institutions have also been accused many times of being biased in the name of providing financial assistance to developing nations. Which also includes negligence in the disbursement of loans and charging higher interest rates from such countries. The US dollar and the British pound were selected as the main currencies to form the global world currency basket in 1973. However, later on, the Euro, Japanese Yen, British Pound, Canadian Dollar, Swiss Franc, and Swedish Krona became part of this currency basket. The most recent addition was Chinese Yuan on this list.

By the year 1999, the Eurozone decided to choose the Euro as its official

currency to promote trade among member countries to ward off the effect of

global dominance in the currency war. Moreover, no obligation was imposed on

the member nations to accept the Euro but to promote healthy global trade

and partnership. But a few nations took undue advantage of this initiative and

instead prioritized their internal reform; they misused the financial assistance.

Which resulted in a debt burden for the member nations and countries like

Greece, whose debt increased up to 120% and ultimately had to be kicked out

of the zone.

Britain has opposed this expected aid to Greece since the beginning, and other

members of the Eurozone have also started considering it an additional burden

to them. Finally, Britain resorted to the public referendum in June 2016, whichprompted it to exit the eurozone. Which is also known as Brexit in history. A similar citation came into effect after the American War against Iran when Iranian citizens seemed to be asking for just a loaf of bread in exchange for a huge pile of their currencies. This further extended the logic that currency is just a piece of paper and nothing else since it has no intrinsic value.

In fact, it is true to a greater extent that a currency is mere a psychological

hypothesis, not actual reality. Moreover, the real value of a currency depends

on its acceptability by people. That is why the sovereign guarantee becomes

an important part of such currency. But in today’s scenario, acceptability takes

center stage, leaving behind the sovereign guarantee. Perhaps that is the only

reason the acceptance of crypto and other digital currencies is gaining

importance. Such currencies are completely market-driven and free from

government intervention at large. On the other hand, these currencies work

purely on the demand-supply principle of economics. The governments of

various nations consider such currencies a potential threat to their countries as

their usage, price, control, and regulation are outside their jurisdiction. In such

a situation, they are not only exaggerating the economic loss that it can pose

but also a parallel government mechanism that can challenge the economy

and government of any nation. The major concern they are worried about is not

having a sovereign guarantee to back such currency price fluctuations.

However, many tech companies, strat-ups, traders, and ventures are quite

optimistic about the future of crypto currencies. To mitigate the risk associated

with crypto currencies and to bring them into circulation, social networking site

Facebook decided to launch its only crypto currency, LIBRA, in the year 2019.

The company also backed Libra through other real currencies and assets to

mitigate the risk concerns of the sovereign guarantee. This was a well-planned

move to set a stable price value for the currency and provide support and

stability for it. However, the Federal Reserve passed a separate bill, making

service providers responsible for any unauthorized transactions and misuse of

them. The major payment gateway service providers like Visa and Mastercard

kept a long distance from this, and the entire project stalled.

Even though crypto currencies may be viewed with suspicion, many other

countries, like El Salvador, Japan, Canada, and Israel, have officially approved

them. On the contrary, price determination and regulation of legal tendering

through the gold reserve cannot be claimed to be a good and fail-safe idea.

Since the availability of gold in Africa and other nations makes it difficult to maintain the gold price, it is challenging but irrational from a global perspective as well. It is also notable that the Chinese Central Bank has been an active gold buyer for the past several years, but there is also evidence that they chose to sell their gold in the open market, which not only increased the supply of gold in the market but also caused a sharp decline in the price of gold. This also impacted the value of various currencies to a greater extent.This step by the Chinese Bank may be viewed as a rescue mode to safeguard their economy from a slowdown, but it surprised the entire world. As mentioned

earlier, the hidden truth behind the establishment of a few global institutions

was to create global dominance and colonization over other nations. European

nations were the first to realize this agenda and came up with a brilliant

solution to deal with it but could not completely implement it effectively, thus

failing. On the other hand, the conflict over global dominance between two

major western powers, America and Russia, adversely affected their currencies

and trade. To avenge America’s intervention in the Russia-Ukraine war, Russia

decided to completely cut off American dollars from its foreign reserve and

decided to trade in its own currency hereafter. The sudden influx of dollars in the global market not only weakened the dollar but also gave a great shock to those countries and businesses that thought that an economy like America was

shockproof and could not fail.

In reality, currencies are not very far away and will be driven by demand and

popularity and not by the sovereign guarantee. These currencies will determine

the future of nations and governments as well. The increasing rift between the

rich and the poor is an indication that countries need to focus on strong

economic reforms to eradicate the misconception in the public that the

government only protects the interests and benefits of the rich.

Investors are considering it’s their only opportunity to become rich, whereas

few people consider the failure of the government as the main reason for their

poverty and neglect. In a country like India, the central bank’s (RBI) attitude

toward controlling and regulating the cash flow is also considered biased. On

one hand, maintaining a fixed amount as CRR at RBI is a mandatory compliance, whereas the insurance sector has no such guidelines to adhere to,

posing a serious concern to investors and customers alike. It is noteworthy that

the RBI does not provide any interest on the deposited money, whereas the

banks have to pay interest to the investors. In reality, investors keep looking

for opportunities that can make them rich overnight, even if they need to peril

their investment.