This Note's premise is simple: the dollar should no longer be the world's reserve currency. Because of the global imbalance of trade, the hoarding by "saving" countries of foreign currency, and the reliance on the Federal Reserve to set global monetary policy, the financial system is unacceptably unstable. To better regulate and manage the risks of global financial markets, some have proposed creating a global central bank - a "clearing union." This paper proposes, by contrast, an 1) international reserve currency that would be 2) indexed to gold and 3) placed under the regulatory sweep of the WTO, an already stable and efficient regulatory body. This system would not be dissimilar from the "par value system" that emerged from the Bretton Woods Conference - a system that pegged all currencies to fixed exchange rates relative to the U.S. dollar, which in turn was fixed to gold. The original Bretton Woods system failed when the United States faced looming domestic trade deficits. Because growing deflation was unacceptable domestically, the United States abandoned the gold standard. A global currency would correct the problem, and might finally achieve much desired stability in global financial markets. For context, Part II of this paper describes the global financial crisis. Part III outlines the ways global account imbalances both contributed to, and then exacerbated, that crisis. It further discusses previous proposed solutions to global account imbalances that, in one way or the other, fail to provide adequate reforms. Part IV then defends, respectively, the three elements of this proposal: 1) an international currency 2) indexed to gold 3) regulated by the WTO. Finally, Part V argues why this model is, in fact, desirable and beneficial for the United States, no less than any other nation.
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