Are we going to see a Global Currency Reset?

Recently I read an article discussing the inevitability of a global currency re-evaluation and reset. For most observers and even many traders, the first questions that comes to mind is not the merits or failings of such an issue, but something much more fundamental – What is a global currency reset?

There is a reason that most people are not familiar with the concept. That is because it is something that has rarely been used in recent history. Only once in the last 100 years, after World War Two, with the fear of another great depression in the air and a note of conciliation in the collective minds of politicians the world over, at the famous Bretton Wood conference, was this achieved.

It was effective in preventing another depression and in fact, the years post World War Two saw strong economic recovery as the world recovered from its wartime slump and industry exploded.

It was also a unique confluence of circumstances. The world had been decimated by war, and countries had come together collectively to fight a common enemy. It was the last time that much of the world had stopped thinking exclusively about sovereign interests and banded together for international goals.

The lives of foreign nationals became important, and armies fought for and protected the lands of their neighbors. Politicians had become used to thinking about the interests of their allies. This alone made it a unique time in history for collaborative action and collaborative will.

The reason this is relevant is because a global currency reset is where all the nations, or at least a vast majority, agree to one currency standard, like gold, for example. The critical factor is agreement between countries, which is only ever achieved when the needs and interests of those countries are aligned.

The case for something like a global currency reset is interesting, and harks back to the darkest financial days of recent times. In 2008, as the world economy was teetering on the edge of the abyss, thoughts were moving towards how this situation could have occurred and how to prevent this occurrence in the future.

The leaders of the world wanted to create a situation where irresponsible activities in another country did not destroy their economy.  Post Bretton Wood the main reserve currency held by countries was the US dollar, yet another reason that worldwide financial issues were so encompassing.

Would a reset be the solution?

Ultimately, the world did not go that way. Post World War Two was a unique time, where not only was there a global consensus but also mutual interest. Post 2008, the mutual interest was lacking. The simple fact that some countries would have benefited less from a global reset, meant that it would take significant political will to undermine this element.

To surrender control of monetary policy because of the failures of another country would be unthinkable politically. Resets would limit the ability of central banks, a major point of friction that is playing out in Europe.

Not to mention the fighting that would arise amongst countries trying to set the new standard. Just think of the varying positions and interests of Russia, China and the USA and you can imagine how easily this would be solved.

Is the world likely to see another global currency reset?

Honestly, it would take a worldwide disaster the level of World War 2 to bring together the world for a reset. So if a reset does become a reality, we can probably agree that it is likely to be the least of our problems.