To the joy of conspiracy theorists everywhere, the new “United Future World Currency” coin was presented at the recent G8 summit in Italy. So far though its just a piece of alloy metal but hey value is in the eye of the holder.

As usual it was the Russian President, Dimitry Medvedev, giving the $ a good roasting and moving the debate forward to the minting process. But really how far advanced is this process and how serious are they? More to the point what would a global currency unit look like?

To answer the first question is simple: I have no idea. At the political level it is mere grandstanding usually for the domestic audience. Sometimes it’s easy to forget that most politicians have little understanding of how the global financial system works (no different from anyone else!) but back in the offices of Treasuries and Central Banks it may be a different story.Though I was struck by the recent bizarre questioning of Bernanke over the issue of $ currency swaps with central banks. It’s a classic.

I do think though that the Eurasian block are serious about making this move. Each step is a step closer to creating a multipolar currency whether its based on the Special Drawing Rights (SDRs), a Commodity Backed Currency (CBC) or an Energy Backed Currency (EBCU). Even the Amero could be a consideration.

But the key outcome will be whether we move from a Fiat based system to a hard currency system. That would make a major change in the structure to the global system perhaps taking us back to Keynes’s suggestion, the Bancor. If we stay with a Fiat system then we simply exchange one piece of paper for another.A hard backed system would certainly restore some much needed reality to the meaning and value.

What’s clear is that the US has become a fiscal disaster and holders of paper issued by the US have said enough is enough: your paper is not “as good as gold“.

Tough choice eh…..well not for jewelry lovers. The gold bugs have been enjoying the ride up in the price of gold as well as making fun of Gordon Brown who unloaded a huge brick of the UK gold reserves back in 2001 much to the chagrin of UK taxpayers.

But with the $ swift decline into obscurity the fans of something more solid than the US Treasurer’s signature on a piece of paper are clamoring fro the return of the Gold Standard as a way of preserving the value of paper and controlling the impulse of bankers to keep printing the stuff.

Well yes that does seem to be a problem. I’ve touched on this before when looking at how the Bank of England experienced several runs just after it was formed. Why? Because they printed way more paper than they had in reserves of gold. So gold or no gold, there is nothing to stop authorities or private banks printing paper or more accurately filling up spreadsheets with lots of numbers.

I’m ambivalent on this gold business. Storage issues, never mind the horrendous process of digging the stuff out of the ground, present problems as do the ability to carry it safely but really its a confidence thing.

Readers of this blog should hopefully know by now that money is an artificial construct. We can make it anyway we like. It’s created into existence in some form in order that we can exchange goods, services and labour in an efficient manner.

It is subject to the laws of supply and demand like any other product or service.

William Rees-Mogg makes some interesting points about it here but the reality is still the same gold or no gold. We must control the supply of money. 1:1 exchange for gold is a way to do that but its so last century. Surely we can come up with a smarter way of doing it.

My favoured approach is for a central monetary authority to issue interest free new money into the system directly. that supply of money (the only supply) could be controlled on an annual basis responding to set limits, constraints and changes in demand, population etc.

Goodbye interest, goodbye inflation and goodbye financial markets as we know them.

Gold bugs or not, we have to do something about the current system before it blows up and makes the 1930s depression look like an afternoon tea party.

With the meltdown in the US $ has come a raft of stories about the end of the greenback as we know it. Messrs Chavez and Ahmadinejad have been whooping it up at the recent OPEC summit and gloating over the demise of the $ etc etc. Well not everyone agrees with their opinion on the matter but clearly the $ has had a major kicking and there are now other options on the table for currency reserves such as the Euro and now more than ever the Yuan though it’s not fully convertible.

Already some well known investors such as Jim Rogers are looking elsewhere to put their money. Last year he called the US recession and the $ decline. Interestingly he saw the Euro as disappearing within 15-20 years as it was a “political currency”. I never though it would last 10 years so it’s done well. He also recently said he would like to put all his money into Yuan…wouldn’t we all?

But there has also been plenty of chatter about new currency unions….Asian? or what about a NAFTA based system?

It’s called the Amero, a union between the US, Canada and Mexico.  It’s an interesting project, overrun with innuendo and conspiracy theories. As Jim Rogers says political currency unions never last (the same goes for free trade agreements).

Whatever the merits of the Amero, it’s clear that the geo-currency axis is shifting to incorporate more players. It could make for some interesting times ahead in the global currency markets.