What is the International Monetary Unit?

Published by Thomas Herold in Accounting, Economics, Trading

'International Monetary Unit' is explained in detail and with examples in the Trading edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

International Monetary Unit can refer to two different things. It could be the U.S. dollar, which is the world’s primary reserve currency. The International Monetary Unit is also the Special Drawing Rights, which are the currency units that the International Monetary Fund issues.

Special drawing rights are not an actual unique currency per se. They are units that are made up of a special basket of currencies. These days, these are comprised of U.S. Dollars, British Pounds, Japanese Yen, and Euros. The Special Drawing Rights, also known as SDR’s, can be said to be International Monetary Units since they prove to be reserve assets for international foreign exchange. The International Monetary Fund actually allocates them to different countries. These SDR’s offer the ability to get foreign currencies when a country needs hard cash for emergencies and other financial crises.

Although they are still expressed in units against U.S. dollars, the Special Drawing Rights remain the International Monetary Fund’s only unit of account. They have their own currency code, XDR. They may be only little used now for an International Monetary Unit, but their utilization is growing, particularly at the insistence of Russia, China, and the United Nations.

Since the end of the Second World War, the U.S. dollar has proven to be the world’s main reserve asset for foreign exchange. This makes it a primary candidate for the world’s International Monetary Unit. As over sixty percent of central bank reserves are still held in dollars, it is unarguably the world’s reserve currency even though many nations would like to see this changed and its share of reserves has been dropping consistently for some time now. Countries ranging from China and Russia, to Iran and Venezuela, to France have all called for a new International Monetary Unit to be established, particularly in the wake of the Financial Crisis of 2007 to 2010.

A new international monetary unit may arise to replace the dollar, but it does not look to happen any time too soon. This is mainly because no suitable replacement for it has been found yet. Euros are not yet widely enough held, though they are gaining in share of reserves each and every year. Neither Japanese Yen, nor British Pounds, nor Swiss Francs are significantly representative enough of economic spheres of influence to be a viable challenger. The special drawing rights are one possible replacement for the dollar, as would be a gold backed International Monetary Unit. Gold served this purposes for several hundred years during the gold standard era of the 1700’s to 1971.

Gold is a last candidate for a new International Monetary Unit. As it has universal appeal and acceptance, it does offer a strong challenge to the dollar. Gold is a hard international monetary unit to argue with because it does not bear the liabilities of any single nation. It can not be manipulated by any single government or corporation. This makes it a likely choice as at least part of a new International Monetary Unit in the coming century, if not the sole one.

Free Download (No Signup Required) - The 100 Most Important Financial Terms You Should Know!
This practical financial dictionary helps you understand and comprehend the 100 most important financial terms.

The term 'International Monetary Unit' is included in the Trading edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.