Editorial: Funny money and the U.S. dollar

The idea of a new global currency to supplement or even supplant the dollar has prompted a spate of proposals, some serious, most plain loopy.
In the latter category is Hugo Chavez' proposal to Arab and South American leaders that the dollar be replaced by a "petro-currency" based on the price of oil. The drawbacks of basing a currency on a highly volatile commodity should be especially obvious to the Venezuelan president, whose oil-dependent economy has suffered greatly from an almost two-thirds fall in the price of oil.
A new reserve currency would require that other trading nations trust the people managing the currency, and Chavez with his record of economic mismanagement and expropriation of assets doesn't quite fit the bill.
Iran has proposed replacing the dollar as the international standard, at least in part, with the euro or some other currency, although only the Japanese yen might really qualify. There's nothing to stop Iran from doing business in euros right now although the cool reception to the idea indicates it won't have a lot of company. And Iran might want to wait and see how the eurozone fares during the recession.
Russia regularly calls for replacing the dollar as the world's reserve currency, once even suggesting that it be the ruble but Russia's custom of turning off Europe's natural gas when it doesn't get its way doesn't augur well for its stewardship of a world currency. Also its economy is shrinking and capital is pouring out of the country.
The Kremlin's chief economist did propose a modest return to the gold standard by including gold in the basket of currencies that make up the Special Drawing Rights, or SDRs, of the International Monetary Fund. Not surprisingly, the nations most interested in gold as a reserve currency have a lot of it, as Russia does. Countries that don't are considerably less interested.
Russia claims to be in league with China in seeking a new reserve currency, and it was China that made the most serious proposal about an alternative -- not a replacement -- for the dollar in world trade. China has suggested reworking the SDRs, which, as it happens, are valued in dollars, as a way of settling international accounts. The SDRs are complex instruments and turning them into anything like a world currency would be enormously complicated.
Besides, China with its vast trade with the United States and huge holdings in dollars is perhaps second only to the U.S. Federal Reserve in its concern for the health of the dollar.
All this talk about the dollar has alarmed the more easily agitated reaches of the political right, and Rep. Michele Bachmann, R-Minn., has proposed a constitutional amendment to ban the adoption of any other currency than the dollar as legal tender. This is an even more far-fetched notion than Chavez' petro-currency.

(Distributed by Scripps Howard News Service, http://www.scrippsnews.com)