A world reserve

 The global financial system rests on a striking reality: almost all countries rely on a currency they do not control. The US dollar is the world’s primary reserve currency, underpinning international trade, finance, and central bank reserves. From oil contracts to cross-border loans, the dollar dominates as the medium of global exchange.

This arrangement brings a measure of stability; after all, the dollar is backed by deep US financial markets, strong institutions, and relative trust in the Federal Reserve. But it also creates vulnerabilities. A system where one nation’s currency is the foundation of global commerce means the economic choices of that nation ripple far beyond its borders.

This can pose some risks, especially under the uncertainty of monetary policy in the country that holds the world's currency. With the Federal Reserve being threatened with losing its independence from government, it has shaken markets as members are being threatened with being fired for not complying with the President's demands to lower rates even when such a policy wouldn't adhere the FR's Monetary Rule which aims to keep inflation and unemployment at an appropriate level (although targets haven't been met, and threats of stagflation). Disadvantages have also been exacerbated through the tariff and threat of government debt exploding have leaving investors no longer considering the dollar and subsequently its T-Bills the safe haven they once were.

That raises the question: do we always have to be so reliant on one country? If the dollar were to fall, would we just find a new country's currency to repeat the fate of the booms and busts of empires?

Well, let's play a game of make-believe and discuss how an international currency would work, and im not talking about converting to blockchain as some of you might hope for, as its high volatility makes it impractical to be used.

“Chartalism suggests fiat money derives value from the obligation to pay taxes in that currency.” It would be hard for countries to be willing to pay taxes, although if done right, a system where global taxes are paid through the negative externalities they incur to the world, such as carbon taxes, may work, but this would struggle to get adopted as members would resist ceding fiscal sovereignty. So, we would need the currency to have some backing to it. We could back the currency with a basket of government bonds based with weighting based on the percentage of volume of trade, using the system interest rates would intuitively be based on the underlying bonds held.

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