World money Is a function in which money serves the movement of value in international economic circulation and ensures the implementation of relations between countries.
The allocation of the function of world money is due to the peculiarities of the movement of value in the world market, which are determined by the division of this market by state borders. Thanks to this division, a specific subject of economic relations appears here – the state, which represents and protects the interests of the country as a whole. Therefore, in the world market there are economic contradictions of a higher level than in the domestic market, which also affect the relationship between direct buyers and sellers.
First of all, counterparties have distrust in the currency of a foreign state – either in terms of the weight content of precious metal in a coin, or in terms of the obligation to accept banknotes in all types of payments. This was especially acute at the beginning of the formation of the world market, because of which money could appear there only in the form of ingots of precious metals, having removed, in the words of K. Marx, their “national uniforms.” Therefore, in those conditions, the function of world money was performed only by full-value money. Their acceptance in payments was carried out by weight, not by the number of coins.
Money in the world market performs the functions of a common means of payment, a common means of purchase and a means of transferring wealth from one country to another.
World money is a complex function that essentially repeats all the functions inherent in money in the domestic market.
This circumstance has given grounds for many researchers not to single out world money as a separate function at all. One could agree with this position if all national money were freely convertible. However, this is not so – the functioning of the money of most states is limited exclusively by their national borders. And when the economic subjects of such countries enter the world market, they need completely different money. That is, we are talking here not only about a new direction of using money, but, in fact, about other money, which gives reason to single out world money as a separate function.
If world money is used to pay off debts associated with foreign trade, bank and financial loans, etc., then they perform the function means of payment… When they are spent for the immediate purchase of goods or services and instead of a certain amount that is exported (sent), an equivalent commodity value is imported into the country, they perform the function purchasing means… Using this function is less profitable than the first one, since it requires preliminary accumulation of a reserve of world money. Therefore, it is observed less often – in cases of some extraordinary events, when the usual balance of exchange between countries is disturbed (crop failure, natural disaster, social upheaval), distrust arises in the solvency of a foreign counterparty.
If world money moves from one country to another without a reciprocal movement of a commodity equivalent or debt repayment, then they provide a transfer wealth… This takes place when paying indemnities, reparations, providing cash loans or assistance, exporting money by emigrants, shadow entrepreneurs, and the like.
World money functions and how measure of value and counting units, since the national prices of any country cannot fully meet the needs of the world market and its own price system is formed on it.
The most difficult question in understanding the function of world money is the question of the form in which money performs it. Some economists believe that even now this function can and is performed only by gold. Others deny this, citing the fact that gold has ceased to be directly used in any payments on the global market. They consider buying and selling gold there for national currencies as trade in ordinary, not monetary goods.
Indeed, the mechanism of the function of world money has been continuously developing as economic relations in the world market develop. When this relationship reached a high level of reciprocity, it became possible to settle claims for payments by setting off or transferring promissory notes without sending gold for each payment. This work is carried out by commercial banks, joining the organization of international settlements. They began to send gold to each other only to pay the balance of arrears on payments. Here, the partial use of gold as a means of payment in the world market was still evident.
After the abolition of the gold standard and the prohibition by many states of private transactions in gold, banks lost the ability to use gold to regulate payment relations with other countries. Only central banks and treasuries retained this right. They can sell part of the gold in the markets for one of the national currencies that are trusted in the world market, and pay off their debts with it. This mechanism has not fundamentally changed after the ban on private transactions with gold in the leading countries of the world was canceled in the 70s. Although commercial banks have received the right to operate with gold, they do not use it for mutual payments, even to pay off the balance of mutual debt. They seek to sell gold in the market for currency and settle payments with it.
So, in modern conditions in international markets, world money, primarily as payment and purchasing means, successfully appears in “national uniforms”, and even without intrinsic substantial value. What are the reasons for this? Why did the subjects of international payment relations begin to trust national money as world money? These transformations are due to the very development of the world economy and the changes in international payment relations that are adequate to it.
Firstly, a wide world market has formed with a system of interconnections and interdependencies between its subjects, with a wide development of credit relations and banking services between them. In such conditions, world money in most cases functions instantly and there is no longer a need to use full-value money for this. Value signs began to meet the demands of the new market for world money.
Secondly, the economic potential of individual countries has reached enormous proportions, which has provided their states with the opportunity to ensure confidence in their national money (as real carriers of exchange value) not only in the domestic but also in international markets.
Thirdly, the very relations between states have radically changed, the economic confrontation was supplemented by cooperation with the aim of general regulation of the world economic space and monetary relations as the most difficult part of it. Together, the countries began to build mechanisms to ensure high confidence in one of the most stable national currencies (for example, the US dollar), as well as create new international currencies with the same qualities (SDR, ECU, euro). And while the subjects of the world market will be confident that they will be able to buy the goods they need for that kind of money, as long as they will accept them in payments without requiring gold. This is confirmed on a large scale by the modern practice of international settlements, which are successfully carried out in the national freely convertible currencies of individual countries or international currencies.