Question of the Day: Is it possible to create an international reserve currency by decree?

Ivan Zubov

As you know, in his speech at the BRICS forum, Putin, among other things, stated that the issue of creating an international reserve currency based on the basket of currencies of the BRICS countries is being worked out, thereby announcing the creation of a new world currency.

According to him, the new currency will become a competitor to the dollar, the euro and will be created on the basis of the basket of currencies of the BRICS countries. Western currencies and economies, according to Putin, are slipping into a deep crisis because they have started the printing press, carry out "uncontrolled emission" and accumulate unsecured debts.

“Our macroeconomic policy is actually showing effectiveness,” he said. “We were able to protect the Russian financial system and begin to stabilize the situation in the industry.”

Economist Dmitry Prokofiev set out to clarify the situation in his channel: “I heard so many words these days about the reserve currency that I decided to remind readers what, in fact, they are talking about. (no doubt you know what it is, but suddenly).

First. Nobody. Never. No agreements. He did not appoint any "reserve" currency. In what monetary units it is more convenient for someone to conduct international settlements and have savings - this is really "the free choice of people."

Why are some currencies called "reserve" while others are not? Because some currencies people want to use for savings and transactions, and banks meet them halfway and accumulate "reserves" denominated in this currency, while people do not want to use other currencies as reserves. They use “non-reserve currencies”, they buy something, they can leave a little bit of “another currency” just in case, but nothing more.

This is how you keep coins or banknotes at home that you didn’t have time to spend in the countries you once visited? The amounts there, as a rule, are small, and changing these coins / banknotes for rubles (dollars, euros) is only a waste of time. Maybe you will go to those parts again, here they will be useful to you - but nothing more. And you will most likely accumulate savings in some other currency.

Is it possible to declare some currency "reserve"? Theoretically, yes. But to force people to accumulate this currency in their accounts, simply because you called it that, is not.

The word "reserve" seems magical to us, it is not by chance that it is written on dollar bills. But in reality, the phrase "federal reserve note" means only that this piece of paper is a perpetual promissory note, uniformly accounted for by the US banking system. And that's all. And if someone gave you this receipt, and you accepted it, then his obligations to you are exhausted. Then look for someone who wants to take it from you. And here is the number of people who want to accept such a receipt from you as payment for their goods or services, and will show the degree of its “reserve”. And not an order at all, and not even an agreement ... "