As a medium of exchange, the currency avoids the demand coupling between the two parties, which is a must in barter trade, and greatly promotes the development of human society and economy. It can be said that currency is one of the greatest inventions of human society. No matter what the form of currency is, and no matter how its function is extended, its role as a medium of exchange is still the most basic and most important.
When we expand our vision to the world, transactions between different economies also require a medium of exchange. Precious metals such as gold and silver, which are generally accepted by various economies, once played an important role as a medium of exchange. And an important feature of precious metals such as gold and silver is non-sovereignty. However, with the gradual withdrawal of precious metals from the stage of currency competition, and the in-depth development of currency sovereignty and paper currency, the colorful currencies begin to delineate the regional scope of their respective roles.
Ascending to the international level, in order to facilitate transactions between different economies, a universally recognized medium of exchange is needed. In the absence of non-sovereign international currencies, the functions of some currencies need to be extended beyond their own countries to become the so-called international currencies. Since modern times, the British pound, the U.S. dollar, the German mark, the euro, the Japanese yen and so on have all played roles as international currencies in varying degrees.
From the perspective of a single economy entity, currency, as a medium of exchange, has the attributes of the public good—that is, under the premise of legal compliance, someone has the right to use currency for transactions without being hindered by others. Ideally, international currencies should also have the attributes of public goods. When market entities want to use international currencies for transactions, they should not be disturbed.
But the ideal is just an "ideal" after all, the reality is another scene. Since World War II, the U.S. dollar, as the most important international currency, has an extremely stable position. Although other currencies have been given the task of challenging the status of the U.S. dollar, they have not succeeded. Of course, although this task has not been successfully completed in the past, which does not mean that it will not succeed in the future. It is not necessary to overturn the U.S. dollar, and it is not impossible for multiple international currencies to coexist. However, as Robert Mundell, the Nobel Prize winner in economics and the "father of the euro," said, the optimal number of international currencies is odd and less than three.
The internationalization of the U.S. dollar has brought many privileges to the United States. These arrogant privileges have aroused the dissatisfaction among many people, which include the former French President Charles de Gaulle. From a cost-benefit point of view, currency internationalization will bring both costs and benefits. But if the market choice which is under objective conditions promotes a currency to become an international currency, it is blameless that it will bring certain benefits to the country where the currency is located. However, when the issuing country of the international currency takes the international role played by its currency as a tool and weaponizes it, using it without restraint for achieving political purposes—then the international status of this currency is questionable.
In recent years, the United States has recognized the unique role of the U.S. dollar in global transactions, and it has frequently used the U.S. dollar as a weapon to impose sanctions on other countries and cut off their channels of using the U.S. dollar for transactions, which has led to the suspension of international trade in the sanctioned countries and seriously affected their economic development. After all, the transaction is a business for both parties. When the United States uses the U.S. dollar to sanction an economy, it also hurts other economies, which is the so-called secondary sanctions. This has led to many economies complaining about the dollar sanctions, and has also prompted some economies to seek other international currencies and break away from the U.S. dollar settlement system.
For example, in order to circumvent the sanctions imposed by the United States on Iran, Europe has supported the establishment of the Instrument in Support of Trade Exchanges (INSTEX)—namely European exporters export products to Iran, importers import products from Iran, and then European exporters and importers wind up the account in Europe. In the same way, Iranian exporters and importers settle accounts in Iran. In this way, there is no need for capital flow, just the flow of goods can achieve the purpose of transaction. Of course, it remains to be seen how effective this mechanism will be. Another example is that recently, oil exporting countries such as Russia have gradually sought to use other currencies for settlement when exporting oil, so as to avoid the negative impact of U.S. dollar sanctions.
There is no doubt that international currencies have played an important role in promoting international transactions. And there is even no denying that when a few currencies play an international role, the trouble of exchange rate fluctuations between different currencies and the need to reserve different currencies is eliminated. But as our daily experiences tell us, when you rely heavily on something, the sudden disappearance of these things will have an unbearable weight on you. This is the same for international currencies—when a currency which countries heavily rely on is suddenly cut off, their international transactions will be suspended and their economy will be in trouble!
Regardless of the angle of the view, the international status of the U.S. dollar will be relatively stable in the short term. For us as individuals, after we have experienced profound lessons, we will learn from them, and finally these experience we learned can even be used for a lifetime. The same is true for countries—when sanctions have an impact on their economy, they will find ways to stay away from sanctions. When the alternative path has been taken shape and can better replace the original path, then there will be no need to return to the original path.
