In a March speech, Zhou Ziaochuan, governor of the People’s Bank of China, floated the notion of a single international reserve currency, “that is disconnected from individual nations and is able to remain stable in the long run.” (A reserve currency is maintained by central banks so that they can invest in and trade with other countries and manage the value of their own currency.)

Some analysts viewed the comments as little more than China stirring up trouble and flexing their growing economic clout. And, self-interest probably was one factor behind the idea, as this article from the Canadian Broadcasting Corporation points out. The Chinese, along with others around the globe, worry whether President Obama’s stimulus plan will prompt inflation, devaluing the greenbacks China holds. That would also increase the value of the yuan, cutting into China’s exports.

Just how likely is a shift to a global reserve currency? At this point, not very, says Jason Hsu, an assistant professor of finance at UCLA’s Anderson School of Management and Managing Director of Research and Investment Management at Research Affiliates. “The world doesn’t move that quickly,” he says. “There are too many moving parts that would need to fall into place for that to be reality.”

And, any shift to an international currency for settling transactions would result in some of the same problems faced by Euro-zone countries. “The countries that adopt it lose their monetary authority,” Hsu says. “They’re no longer able to adjust their domestic interest rates” to, for instance, buffer against domestic occurrences of inflation or unemployment.

What about another currency replacing the dollar as the dominant one? After all, the U.S. has lost much of its credibility when it comes to money and finances – a result of the implosions in the financial sector and monstrous fiscal deficits. And, anecdotal evidence suggests that a growing number of businesses outside the states are requesting payment in local currency, Hsu says. “It may be a crack in the foundation.”

As the Chinese economy as well as the economies of other developing nations continue to grow, that foundation is likely to develop more cracks. While sudden, dramatic shifts are unlikely, treasurers and corporate financial execs need to be prepared for a world in which more transactions are completed in a variety of currencies. ###