Why not a one-world currency?

[Seraphim]

Keep in mind I snoozed my way through Economics 101 in college...

If most of Europe can unite and use a single currency, why can't they extend the principle to envelop the entire world? Is there any roadblocks for having all countries use the Dol-yen-ro as their currency?

[Standup Karmic]

IIRC, a global common currency would remove a government's ability to control its monetary policy. Any given national economy has its natural highs and lows, and they do not naturally coincide across nations. They are able to adjust to these highs and lows by adjusting interest rates to either stimulate or slow the economy. If there were a single currency, they would no longer be able to do that. Here's why:

Let's assume the interest rate was low in one country, because they are trying to stimulate the economy, and high in another, because they want to slow it down a bit (to prevent high inflation). Anyone who wanted to borrow money would do so in the low-interest-rate country (LIRC) because it will cost less. Anyone who was investing would want to do so in the high-interest-rate country (HIRC), because they can make more money there. Eventually, all the money would be gone (borrowed) in the LIRC and there would be a massive surplus in the HIRC. Because there is no demand for the money in the HIRC, interest rates would naturally drop. Because there is massive demand for money in the LIRC, the interest rate would rise. Eventually, the two would meet equilibrium. Thus, neither government actually has control over its monetary policy.

[Standup Karmic]

I suppose I also should mention that this scenario doesn't carry to different interest rates between different currencies. There is risk in borrowing in one currency and converting it to the currency you need. In the event that the value of the domestic currency drops in relation to the borrowed currency, you are going to be paying back more than you needed to, thus losing any possible savings, and perhaps losing far more.

[msmith537]

Cause I don't think it would benefit us to tie the US dollar to the Brazillian real, the Mexican peso, or the Japanese yen.

[Tristan]

Today, I can go into my local store and buy a loaf of bread for 89/100 of a US dollar.

If suddenly the currency that I am using is also being used to prop up shaky economies in different nations, the odds are good that my dollar will suddenly lose a lot of purchasing power here, and gain a bunch in Slumovia.

I don't know for sure, but this strikes me as a bad idea. Eventually I forsee a time when the world uses only a handful of currencies (The dollar, the Euro, the Yuan and whatever takes prominence once Africa stablizes, I imagine). This will only happen when all the participating states are stable and functioning.

[Snooooopy]

One-world currency = Satan! Everybody knows that!

[Standup Karmic]

Originally posted by Tristan
Eventually I forsee a time when the world uses only a handful of currencies (The dollar, the Euro, the Yuan and whatever takes prominence once Africa stablizes, I imagine). This will only happen when all the participating states are stable and functioning.

While it could happen (and has begun with the Euro), I don't think it will last. The minute any one of those nations begins to suffer any significant economic slump, the others will drop it like a hot p'tayta. Given that economies don't tend to experience their highs and lows in unison (over any kind of long term), it is only a matter of years, and not many at that.

[cankerist]

Concerning a unified currency, may I recommend a short story "The Great Simoleon Caper" by one of my favorite authors, Neal Stephenson. Its available on the net at:
http://www.salamandr.com/books/stephenson/Neal%20Stephenson%20The%20Great%20Simoleon%20Caper.htm

[Troy McClure SF]

Originally posted by Snooooopy
One-world currency = Satan! Everybody knows that!

He was un-banned and changed his name?

[ftg]

Note that a few countries have adopted the US dollar as their own currency. I recall Ecuador off the top of my head. This trend will probably accelerate over the next few decades until almost all 3rd world countries are using dollars/euros/etc.

A global economy is forming, but it is a very gradual process.

[Sunspace]

Okay... if a one-world currency does not work well because of differing economic cycles in different countries, why does that not also apply to the different states of the USA?

[Standup Karmic]

States don't control monetary policy. That is Greenspan's realm alone. They must promote business through other means (taxes and such).

[lothos2002]

Originally posted by Tristan
Today, I can go into my local store and buy a loaf of bread for 89/100 of a US dollar.

If suddenly the currency that I am using is also being used to prop up shaky economies in different nations, the odds are good that my dollar will suddenly lose a lot of purchasing power here, and gain a bunch in Slumovia.

I don't know for sure, but this strikes me as a bad idea. Eventually I forsee a time when the world uses only a handful of currencies (The dollar, the Euro, the Yuan and whatever takes prominence once Africa stablizes, I imagine). This will only happen when all the participating states are stable and functioning.

This is incorrect. As long as the US retains control over its monetary policy, another country using USD as a currency would have no effect on the purchasing power of the United States. This is different from a unified world currency, where no one country would effectively have a monteary policy, but it would be undertaken by a Wold-Central Bank (probably).

Having a currency and control over monetary policy allows a country's Central Bank to adjust in the event of external shocks. Think about it this way. If Slumovia (to use your fictional country) has its own currency, the Central Bank of Slumovia can increase or decrease the monetary aggregates through the interest rate if a decrease in economic activity is foreseen, or if inflation is expanding, etc. This is called monetary policy.
On the other hand, if Slumovia uses the US dollar as a currency, the Slumovian Central bank cannot increase the amount of money in circulation, since dollars only come into the economy from the US (or other foreing countries) as payment for exports, transfers for foreing aid or other ways that I won't go into right now. Slumovia is not a member of the Fed and therefore has no control over monetary policy in the US, they are subject to the dollars they can receive only through trade or aid, in this example. Therefore, the US would go on their merry way making adjustments in the amount of money in circulation according to their own concerns and the Slumovians would have to either sell more stuff to the US or request more transfers of foreing aid in order to have more dollars. As you can see, there is no effect in the purchasing power of Americans, since they receive the goods and give dollars in exchange, and the Slumovians are subjected to monetary policy decisions from abroad. In this case, you would still go to your local store and buy your bread for 89/100 of dollar.

Monetary unification is different. In the case of Europe, for example, all countries decided to forego their individial monetary policies and place monetary policy decisions in the European Central Bank. In this case, it is the case that one of the member economies could be faltering, while the rest are doing well or viceversa. In this case, since monetary policy decisions would be taken for all of them together, an increase or decrease in interest rates would have an aggregate effect in the purchasing power of all the members, either through inflation or increased investment. In this case, you could say that the national economies which are doing well are temporarily "proping up" the ones that aren't. Nevertheless, the same happens in the United States. Different states have different economies and different needs at certain times, but they all use the Dollar as a currency and they are all part of the Fed. Decisions are made by a committe that comprises all of the States, as the Committe in the European Central Bank encompasses all the member countries. This is not seen as a problem since the US is one country, and individual states chose to foregoe their individual monetary policies in order to have a unified monetary policy, although the United States might not be an optimum currency area. This means that perhaps it would be better to have different currencies in the Eastern and Western sections of the US, or for the Northern and Southern states, strictly from an economic and monetary point of view. I'll try to find some references for the theory of optimum currency areas if you want.

As for the OP, I don't think a world - currency would do any good, precisely because different regions are have different economic fundamentals and different needs at different times, but this doesn't mean that countries are the best way to be organised from a monetary point of view.

[Fuel]

Originally posted by Sunspace
Okay... if a one-world currency does not work well because of differing economic cycles in different countries, why does that not also apply to the different states of the USA?

States actually would benefit from using their own currency, depending on if you look at it from one given states' perspective relative to anothers'. But the U.S. as a whole would suffer big time and the end result would be that every state would be eaten alive for lack of resources and strength of currency. So, what I am saying is that it does hurt the states individually, you just don't realize it because they benefit ten-fold from having a solid national currency.

A one world currency implemented over time in say 30 years would destroy a lot of competitive advantages for bigger countries. It would be one big step away from Captialism, so, assuming no big wars, I doubt it will ever happen.

[toadspittle]

States don't control monetary policy. That is Greenspan's realm alone. They must promote business through other means (taxes and such).

In other words--the lending rates all over the USA are determined by the central banks' rates; there aren't state banks that control lending rates within the state itself.

But, basically, you could say this debacle of international finance (one-world currency) has already occurred here. California's dollars are propping up the dollars in Mississippi, etc. If each state still had its own currency (like colonial times), undoubtedly we'd see 1,000,000-unit bills given out as small change at some states' currency exchange centers.

Of course, the economic disparity across the various states is not nearly as dramatic as that b/w the USA and some third-world nations, for example.

[Tusculan]

Since I haven't read this argument yet, here is my two Eurocents worth.

Any modern currency system is not based on actual bullion but on trust and the premisse that the government/central bank will sensible control the volume of paper/metal money. Monetarians and Keynesians may disagree on the exact amount desirable (partly using the instrument of money printing/destroying for macro-economic policy purposes), but they are in agreement that there has to be some limit. For less scrupulous governments it is highly seductive to print additional money to make up for budget deficits. The effects of such a policy may show up only after a while, but are no less disastrous for that (see Germany 1920's). Hence the central bank must be sufficiently disciplined.

If you want a world currency, you also must have someone control the printing of currency, i.e. a central bank. Barring a world government I do not see how all countries are going to agree on putting that much power in one organisation that no country directly controls. There are further problems in distributing possible profits from putting more currency in the economy, but I guess those are secondary to the premier question: who controls the central bank.

(that's what you get for staying awake during Economy 101 ;) )

The fact that some countries use U.S. dollars as currency does not change the above: they are counting on the U.S. Government having the discipline to keep a tight reign on the total amount of currency.

[Derleth]

When the government issues two currencies, and demands that they both be par, the debased one will drive out the more valuable one. This is Gresham's Law, one of the basic tenets of economics, and it applies here as has been alluded to above: If one country starts minting-n-printing to beat the band, knowing it is printing OUC (Official Universal Currency) and therefore on a par with the US Treasury and the Bank of England, its OUC will be easier to get and easier to spend, while being by fiat worth the same as American and British OUC, and so will become the most-used currency gobally because nobody has a say what currency they will accept ("This note is legal tender for all debts public and private, and don't let me catch you saying different!").

With the current system, a fiscally corrupt regime in, say, Somalia can't really have an effect on the Greenspan Greenbacks in the US or the British Pound in the UK because in a system with no fiat, Gresham's Law is inverted: Nobody wants to be paid in funny money (even though all money is equally hilarious, some of it happens to be valuable), so nobody will accept kopecks if they can get cents, or Pesos if they can get Pounds. Good money drives out bad when the fiat has been lifted.

[Tusculan]

Derleth says it better than I did, and in proper economic terms to boot. :o I wrongly assumed that you must have one central bank. Since no-one would agree on one central bank, each country would have its own, and then you'd see Gresham's Law in operation (must weave that into conversation more often).

Well, that's what you get for not getting an Economics major. :D

[lothos2002]

Originally posted by Fuel
States actually would benefit from using their own currency, depending on if you look at it from one given states' perspective relative to anothers'. But the U.S. as a whole would suffer big time and the end result would be that every state would be eaten alive for lack of resources and strength of currency. So, what I am saying is that it does hurt the states individually, you just don't realize it because they benefit ten-fold from having a solid national currency.

Although I agree with you in principle, I disagree with the statement that states in the USA would benefit from using their own curreny. States in the USA are artificial political units based on territoriality, and not necessarily comprise optimum currency areas. For example, it could be that New York City should have a different currency than the rest of the State of New York if only economic considerations were taken into account. On the other hand, several states in the Mid-West for example, could effectively form an optimum currency area, since economic activities are similar within among them. This is only an example and is not based on any studies that might exist, but it illustrates the point.
It could also be that an optimum currency area could comprise territorial areas that were far appart if economic activities undertaken placed them within an optimum currency area. In other words, it could be that California and New York City should have a currency all of their own, while Washington State and the rest of New York City should have another one. The same might apply to different countries located in different continents. As I said, further research into Optimum Currency Areas is required to back up these claims, but theoretically it is possible.

[tomyoung]

Sunspace:
it does apply to the individual U.S. states, or at least U.S. regions. Many economists divide the U.S. into different economic zones as it is. It's true that since we're such a large country, it's harder to come up with interest rates tailored for individual regions. As with all political issues, we muddle through on compromises (like whether gold or silver should back the dollar around the turn of the century.) But monetary policy is only one part of the overall economy, and only one of government's tools. By having such a large, stable country, we have other ways to help pull lagging regions out of slumps, like a massive budget to spend on poorer states, lots of internal investment and lots of foreign money being invested here. The South used to be a totally export based economy, but the American government and American investors have poured money into the region for 150 years, helping to shape the regional economy into something very different. Now the South has one of the world's largest GDPs when it is counted as a distinct economic unit. So fiscal policy matters too. And the presence of strong regions within a country can mean that when one region has a downturn, it's not necessarily victimized by massive currency fluctuations; so again our size and our "anchor areas" can moderate downturns. Ultimaltely I think the inherent stability of a huge nation outweighs the cost of an imprecise monetary tool. Check out this article on how one economist divides the U.S. into regions, and how the regions are converging economically, not diverging. http://www.bea.doc.gov/bea/papers/kanepaper.pdf

There is something in economics called an "optimum currency area" theory -- implying that currency areas can be too big or too small. Anyone know much about it?

[sailor]

But monetary policy is only one part of the overall economy, and only one of government's tools. By having such a large, stable country, we have other ways to help pull lagging regions out of slumps, like a massive budget to spend on poorer states, lots of internal investment and lots of foreign money being invested hereThis is the most important point which many are missing. Having 50 different currencies would be a nightmare and a huge drag on commerce. The common currency is one of the main points which has made the US economy what it is. Having a common currency is a huge benefit for commerce while having to trade is flcutuating currencies is a huge drag. What a state gives up by adopting a common currency with others is more than made up by the benefits of having that common currency and European countries have see this.

The fact is the world is already headed to having a few major currencies much faster than we think. Many countries have already given up their monetary independence in exchange for the benefits of having a common currency. countries which use the US dollar or the Euro or which have their currencies directly tied to one of them:

US dollar: Liberia, Micronesia, Palau, Puerto Rico, Panama, Ecuador, El Salvador, Guatemala, Hong Kong, Bosnia, Bulgaria, Estonia, Lituania, Yibuti, Kiibati, Lesoto, Namibia, Swaziland.

Eurozone: Germany, Austria, Belgium, Spain, Finland, France, Greece, Ireland, Italy, Luxemburg, Netherlands, Portugal, Andorra, Vatican, Monaco, San Marino. African Finacial community Franc (tied to the Euro): Benin, Burkina Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal, Togo.

Then you have other monetary unions in the Caribbean and elsewhere.

Many countries have gladly given up their monetary independence because they had more to gain than to lose by it and the trend will continue.

[lothos2002]

Originally posted by sailor
The fact is the world is already headed to having a few major currencies much faster than we think. Many countries have already given up their monetary independence in exchange for the benefits of having a common currency. countries which use the US dollar or the Euro or which have their currencies directly tied to one of them:

US dollar: Liberia, Micronesia, Palau, Puerto Rico, Panama, Ecuador, El Salvador, Guatemala, Hong Kong, Bosnia, Bulgaria, Estonia, Lituania, Yibuti, Kiibati, Lesoto, Namibia, Swaziland.

Eurozone: Germany, Austria, Belgium, Spain, Finland, France, Greece, Ireland, Italy, Luxemburg, Netherlands, Portugal, Andorra, Vatican, Monaco, San Marino. African Finacial community Franc (tied to the Euro): Benin, Burkina Faso, Ivory Coast, Guinea-Bissau, Mali, Niger, Senegal, Togo.

Then you have other monetary unions in the Caribbean and elsewhere.

Many countries have gladly given up their monetary independence because they had more to gain than to lose by it and the trend will continue.

Most of the countries cited have had this kind of arrangement for a relatively long time (except for the European Union), so I don't think they can be qualified as an emerging trend toward consolidation of currencies. Not that it wouldn't be a bad thing for many countries in the world, though, but there are many conditions that might not make worth losing control over monetary policy.

I think the case of Argentina's recent crisis will be taken as an example that the reduction of transaction costs obtained from pegging a currency to another one does not necessarily offset the benefits that could be obtained from having control over monetary policy. As you can see from your examples, the countries that have faired well with a fixed exchange rate, a currency board arrangement are small, open economies, with a large proportion of tradeable goods vs. non-tradeables. Argentina did not present any of these characteristics, and the fixed exchange rate was adopted in order to curtail an inflationary spiral, not to reduce the transaction costs inherent in foreing trade. It didn't work.

In the case of the US, most of the total trade is conducted within the states, in which case there is a large reduction in transaction costs inherent in a common currency. The same applies (to a different extent) to European countries. Nevertheless, in the case of Argentina, most of its trade was not conducted with the US, a large portion of it is intra-Argentinian trade (non-tradeables), another large portion of its trade is conducted with its neighbouring countries, and then the US. I think that there are only two possible working currency arrengements nowadays, either absolutely fixed (monetary union) or floating exchange rates with no in - betweens as have been tried before, but I don't think monetary unions or currency boards will become very common for medium or large countries with a large non-tradeable goods sector.

[kniz]

Here's a soothsayer (http://www.wolfdevoon.ndirect.co.uk/worldgov.htm) that says the Euro won't last 6 months.

;) Problem is he said it in 1999.

[Dogface]

Originally posted by Sunspace
Okay... if a one-world currency does not work well because of differing economic cycles in different countries, why does that not also apply to the different states of the USA?

Because they aren't really states. They are provinces with pretentions of grandeur. It doesn't matter what the technicalities of Constitution or theory might be, the reality is that they are not independent nor sovereign entities.

[Chronos]

Granted that an economy can fluctuate and that a national bank can somewhat dampen those fluctuations, and that individual nations would not have this power in a one-currency world, isn't it also true that in a one-currency world, these fluctuations would naturally be smaller to begin with?

[John Mace]

On word answer: Albania.

I'm sure there are many others, some even worse.

[JThunder]

Well for one thing, we'd need a whole lot more of those state quarters...

[js_africanus]

I think in the past we have had a de facto world currency when we were on the gold standard. Of course, countries could devalue on their own currency, but countries were also exposed to external shocks that came from the gold market.

Previous posters notwithstanding, I don't see why it would be a problem; i.e. the sentimental value of the Green Back or the Pound is the biggest obsticle (sp?). Of course, the big caveat there is that I'm of the school of thought that holds that one reason why the U.S. is so economically successful is that we have no barriers to interstate trade and one currency, etc.

While having one currency would eliminate the ability of nation X's central bank to adjust to exogenous shocks, it would also reduce the requirement of having gobs of foreign currency on hand. Right now central banks must keep tons of money on hand to engage in these adjustments. Suppose nation X, whose currency is the #, sees that its currency is falling in value. To increase its value, it has to buy up #s and sell dollars (let's say). That is, X's central bank must pick up the slack in demand. So nation X has to keep millions or billions of dollars on hand to buy #s when the # slumps. If nation X runs out of money...they're fooked! One currency would eliminate that problem as I understand it.

[Fuel]

Originally posted by lothos2002
Although I agree with you in principle, I disagree with the statement that states in the USA would benefit from using their own curreny. States in the USA are artificial political units based on territoriality, and not necessarily comprise optimum currency areas. For example, it could be that New York City should have a different currency than the rest of the State of New York if only economic considerations were taken into account. On the other hand, several states in the Mid-West for example, could effectively form an optimum currency area, since economic activities are similar within among them. This is only an example and is not based on any studies that might exist, but it illustrates the point.
It could also be that an optimum currency area could comprise territorial areas that were far appart if economic activities undertaken placed them within an optimum currency area. In other words, it could be that California and New York City should have a currency all of their own, while Washington State and the rest of New York City should have another one. The same might apply to different countries located in different continents. As I said, further research into Optimum Currency Areas is required to back up these claims, but theoretically it is possible. \

You are most definately right, lothos, not all states would benefit. Only the ones in the right place at the right time with the right ingredients.

My thinking was that a state such as Florida could exploit tourism and get visitors to use other states' currency there, and then take advantage of stock piling other states' money. All that and at the same time not having to give anything physically material up for it. Pretty cool idea, but again, this would create so many chaotic problems....... it's just not that simple, which makes the point of a national currency being so much better for all the states as a whole.

[Fuel]

Originally posted by Seraphim
Is there any roadblocks for having all countries use the Dol-yen-ro as their currency?

Wow. I'm trying to picture all money converted to dollars instantly, and what would be the effects.

Rather than get too deep into this, the most basic answer could be that our raw materials and resources (material and intellectual) would become our currencies and our leverage. The dollar would lose it's meaning somewhat...... it would be considered what gold is now and the world would return to bartering. Is the whole world ready for that change of pace?

This is a conclusion I came to after a string of thoughts such as the impossibility of a world central bank and the fact that all the big countries would be giving up their comparative advatages. Seems logical.

[msmith537]

Originally posted by Fuel
Rather than get too deep into this, the most basic answer could be that our raw materials and resources (material and intellectual) would become our currencies and our leverage. The dollar would lose it's meaning somewhat...... it would be considered what gold is now and the world would return to bartering. [/B]


Absolutely not. You always need currency to act as a medium of exchange. No one wants to trade pigs and cows for DVD players.

[moriah]

With regard to the benefit (or not) of US states having their own currency, well, let's oversimplify a bit:

The current situation is that all states use the same US currency. Monetary policy is contolled by The Federal Reserve Board, aka Alan Greenspan (the chair). The Fed decides how much money to print up in order that the U.S. dollar is worth a dollar (so that it's value is mostly constant). Now remember, this is monetary policy which is controlled by a central board acting for the good of the whole country, not for individual states.

However, as has been mentioned, there is fiscal policy: How taxes are being raised and how they're being spent by the government.

Through state taxation, state goverments can affect their economies through state fiscal policies, though they have no control over monetary policy.

Through federal taxation, the U.S. goverment can affect the economy of the whole nation and individual states through fiscal policy.

Is the Northwest booming and the Midwest in a slump? Simple, (actually, way too simplified, but...) just give the Midwest some aid that the Northwest won't. In the end, it is redistribution of wealth. (BTW, right now, the flow of money goes from the coasts to the south and midwest [yes, that's right, all the blue-Gore states are subsidizing the red-Bush states]).

Anyway, the point is: the loss of monetary policy that comes from a state not having its own currency is made up for in fiscal policy of the Congress/President. (Or, it's supposed to be if there isn't an obsessive concern for tax cuts which drown out all other fiscal concerns.)

Peace.
---------------------
"What's the exchange rate for Idaho Spudbacks in Washington Evergreens?"

[Fuel]

Originally posted by msmith537
Absolutely not. You always need currency to act as a medium of exchange. No one wants to trade pigs and cows for DVD players.

As I said, if everyone had dollars, then they would be like gold is right now, valuable, but not primarily a means of exchange but rather a means of wealth. Gold was a means of exchange at one time but primarily signifying wealth, correct? And the fact that no one would want this situation is the point I specifically was making. What's the matter with this reasoning, pray tell?

No one wants to trade pig & cows for DVD players? How do you know? I can think of a business situation in which that would be a mutually beneficial transaction....

[Fuel]

Originally posted by msmith537
Absolutely not. You always need currency to act as a medium of exchange. No one wants to trade pigs and cows for DVD players.

As I said, if everyone had dollars, then they would be like gold is right now, valuable, but not primarily a means of exchange but rather a means of wealth. Gold was a means of exchange at one time but primarily signifying wealth, correct? And the fact that no one would want this situation is the point I specifically was making. What's the matter with this reasoning, pray tell?

No one wants to trade pig & cows for DVD players? How do you know? Assuming the dollars for world currency scenario, I can think of a business situation in which that would be a mutually beneficial transaction....

[msmith537]

Originally posted by Fuel
As I said, if everyone had dollars, then they would be like gold is right now, valuable, but not primarily a means of exchange but rather a means of wealth. Gold was a means of exchange at one time but primarily signifying wealth, correct? And the fact that no one would want this situation is the point I specifically was making. What's the matter with this reasoning, pray tell?

No one wants to trade pig & cows for DVD players? How do you know? Assuming the dollars for world currency scenario, I can think of a business situation in which that would be a mutually beneficial transaction.... [/B]

1) What is the exchange rate of cows to DVD players?
2) How often is foreign currency a factor any of the financial transactions you perform on a given day?
3) Wealth is not the same thing as money
4) When you buy a sandwhich at the local deli, what else are you able to carry with you that is both as convenient and universally accepted as currency or a credit/debit card?
5) A dollar is a piece of paper or a piece of information in an account. It has no inherent wealth other than it's universal acceptace as a representation of value.
6) How will you pay for that DVD at Circuit City of all you have are cows and they need chickens?
7) Gold was not replaced by the barter system. Gold replaced the barter system as a medium of exchange just as the dollar/yen/euro/peso/real/etc has replaced gold.
8) What form would your weekly paycheck come in?


Quite frankly, I don't follow your logic that a universal currency would no longer be needed as a medium of exchange.

[starfish]

The EU set economic requirements for using the Euro. Not all EU contries could meet those requirements and could not adopt the Euro without changes in their own internal economic policies.

To adopt a single currency means adopting a single economic policy. It would be extemely difficult for, say China, to adopt the Euro.

[Fuel]

Originally posted by msmith537
1) What is the exchange rate of cows to DVD players?
2) How often is foreign currency a factor any of the financial transactions you perform on a given day?
3) Wealth is not the same thing as money
4) When you buy a sandwhich at the local deli, what else are you able to carry with you that is both as convenient and universally accepted as currency or a credit/debit card?
5) A dollar is a piece of paper or a piece of information in an account. It has no inherent wealth other than it's universal acceptace as a representation of value.
6) How will you pay for that DVD at Circuit City of all you have are cows and they need chickens?
7) Gold was not replaced by the barter system. Gold replaced the barter system as a medium of exchange just as the dollar/yen/euro/peso/real/etc has replaced gold.
8) What form would your weekly paycheck come in?


Quite frankly, I don't follow your logic that a universal currency would no longer be needed as a medium of exchange.

I should be more clear how I came to this conclusion and granted it might be off because I am trying to analyze a complex hypothetical situation. Hopefully, someone could tell me if it is sound or not in theory, because I am doing this just to exercise my brain.

I am thinking from country to country here, imports and exports. Definately within countries they would use the dollar currency for everyday transactions. The everyday transaction is not what would change here in this hypothetical situation. Its the international business that would become very odd.

Think about this complex question: How long do you think it would take for some countries to run out of currency because of the other few "cut-throat", mercantilistic countries? Only a couple different countries would be left standing with stockpiles of dollars. Those weak countries would be desperate and start trading their few resources for the many resources they don't have. They would be dead in the water and then we would give them loans/investments to keep them alive and supplying, and then rob them again. After like ten years, the world would be a bartering/trading world again, but yes, only on the large international scale.

Now, to shed a contrary light on this point: imagine how bad inflation will be domestically after the U.S. stockpiles all this money. How would this affect international business? Well, geez, I actually think this would make other countries' goods look pretty darn enticing, with the price for peanut butter being $10 here and $5 for imports from other countries experiencing less inflation. And, why would other countries buy our peanut butter or why would the U.S. invest in foreign securities with lower interest rates? Well, what does that do to my mercantile theory? I'm not sure. Would the U.S. let inflation get out of control in this situation? Would this be a normal trough or peak in the international economic wave, discrediting this theory?

Maybe this is a good time to stop here and ask for some help with this theory?

[msmith537]

Originally posted by Fuel
Think about this complex question: How long do you think it would take for some countries to run out of currency because of the other few "cut-throat", mercantilistic countries? [/B]

It doesn't really make sense. A country will never "run out" of currency because it can always print more. The value of that currentcy, however, will be reduced and cause inflation.

Originally posted by Fuel
Those weak countries would be desperate and start trading their few resources for the many resources they don't have. They would be dead in the water and then we would give them loans/investments to keep them alive and supplying, and then rob them again. After like ten years, the world would be a bartering/trading world again, but yes, only on the large international scale.
[/B]

Sounds like the weak countries would be robbing us. Weak currency AND they get to buy many resources at the expense of a few?

Regardless, you would still use some form of currency for international trade. It's still more convenient than trying tfigure out the exchange rate of oil, pigs, ducks, orange juice, lumber, and gold. In fact, the entire system is a lot more complicated than your strawman.

[Fuel]

Originally posted by msmith537
It doesn't really make sense. A country will never "run out" of currency because it can always print more. The value of that currentcy, however, will be reduced and cause inflation.

Sounds like the weak countries would be robbing us. Weak currency AND they get to buy many resources at the expense of a few?

Regardless, you would still use some form of currency for international trade. It's still more convenient than trying tfigure out the exchange rate of oil, pigs, ducks, orange juice, lumber, and gold. In fact, the entire system is a lot more complicated than your strawman.

Well, that is assuming that the country actually had the power to print money. That assumption would be absurd, because all countries would just print as much money as possible whenever they felt the need.

I guess the real assumption here would be a world central bank. In this case, the U.S. would keep soaking up all the money as I said, and every time the central bank would divvy out more money to these smaller countries, the U.S. (and the other few countries like UK and Japan) would soak it up in a matter of years.

Msmith, of course it would be more convenient to use currency, but would it be in the best interest of countries trying to gain wealth and leverage? No. The U.S. would rather stockpile as much money as possible in order to gain advantages. Now, after this is where I might need some help in formulating a theory on what would happen in this silly but thought-provoking hypothetical question.

What are you talking about with my strawman? I know exactly how complicated this all is, that's why I am asking for some input. I'm sorry if this type of hijack is not generally accepted here.......

[Fuel]

I think the answer to this question is how the world central bank would be set up. Wouldn't there need to be one?

I guess the bank would make sure that interest rates and inflation didn't get too lopsided. But I just can't recreate a microcosm in my head that seems natural if the world did indeed go this way. The problem of cut-throat, mercantilistic countries would screw everything up.

Taking the foreign exchange markets away for good is just a crazy thought. People who are trying to get richer than each other, but are using the same currencies exclusively is just an odd thought. I welcome any thoughts.

[Derleth]

I don't think a World Bank would work: On a national level, the central bank has to react to market forces and economic indicators to manipulate the interest level, fiddle with the money supply, and perform other economic arcana to keep the delicate economic balance on the good side. This is so politically charged, aside from being amazingly complex, the Fed in the US is not a political seat. It's closer to a board of directors, more-or-less divorced from all three branches of government, so no President or Congressman can institute bad policy for immediate political gain.

Controlling the economy of one large nation is one thing. Controlling the world's economy is quite another: What do you do when Asian overfishing has lead to a massive economic downturn in most of the economies on the Pacific Rim, whereas an increased need for diamonds to use in advanced semiconductors has caused the South Africans to be fairly rolling in the loot. Do you decrease the prime rate to jumpstart Asia, or do you increase it to prevent Africa from becoming massively inflationary? How would a World Bank deal with war: Swiss- or American-style? (That is, would it allow both sides to keep doing business to preserve `neutrality' or would it embargo one or both of the parties? What the hell happens when the banks embargo you?)

I can't imagine it working.

[Fuel]

I can't imagine it working either, which supports my position about countries running out of currency, no?

[Derleth]

Fuel, your arguments are intriguing, interesting, and absolutely nonsensical. It takes insight to be as interestingly wrong as you have been, and I only hope I can reduce, instead of compound, your errors.

You basically have one hypothesis I've gathered from your posts in this thread: The wealthy nations would take advantage of the OUC (Official Universal Currency) by stockpiling it, leading to massive inflation at home and a return to barter economies in the rest of the world. Loans to the third world would be little more than yo-yos: Currency is only good for buying things from the Big Guys, and they don't give it back.

OK, right there we see some internal contradictions: How would the currency be worth anything if the first world keeps it mostly among itself? You touch on this concept in your mentions of barter, but I don't think you realize what you've really hit upon here. It's important, so I'll give it its own line.

Money is only worth something when it is used.

It is supremely stupid to stockpile pieces of paper. Or to create unread files in a bank's database. Even gold is worthless, if it is pressed into coins and then locked away in a vault. (Hell, have you ever tried swimming in metal? :D) If the rich nations decided to not spend their money in the outside world, they would only harm themselves. The hypothetical (and, really, unworkable) World Bank would do well to screw the prime rate and just collect all of those physical artifacts, the paper and coins, and burn them in that scenario.

But even that wouldn't work: Money is not printed. Money is not minted. Money is created by the economy. Let me restate that:

Money is created by the economy.

Banks create money: Whenever a bank loans out money, they are creating money based on certain rules they follow to avoid losing money. One of those rules is leverage: How much money does the person have access to? Another rule is credit rating: How much can we trust this person? The bank profits off of this money-creation by charging interest: How much more can we make this schmuck pay us than we have paid him?

Interest is of primary importance here: Interest is a direct measure of how much money the economy is creating. The Prime Rate is the ur-interest, the willingness of the Federal Reserve to create money for banks to use. When the Prime Rate is low, banks are encouraged to take money to make money, and they lower their rates as well. That gives Joe Sixpack the incentive he needs to build that new garage with a cheap loan, so he spends money at Lowes, which spends money at the lumber mill, and so it goes, until the economy has too much money. When money is too cheap, inflation sets in. The Fed, if it's doing its job, raisies the Prime Rate, giving banks less of an incentive to create money, giving Joe Sixpack less of an incentive to borrow and spend money.

(Note, again, how I didn't once mention physical artifacts. Everyone, from the Fed down to Joe Sixpack in Yonkers, could be using cryptographically signed e-cash and the system works the exact same way.)

OK, fiddling with the Prime Rate is well and good, but what if we could find a use for more money? What if we could make more money and spend more money, thereby sidestepping inflation altogether? Aha, that's where foreign trade comes in. That's where an expansionary economy becomes immensely valuable. That's when you send Magellan and Drake and Cristoforo Columbo off on crazy adventures to find spices and silks and crazy natives we can subjugate and force-feed manufactured goods from the Motherland as we rape their wilderness. (That, BTW, is Mercantilism.) Spending in the Third World is great! We can keep interest rates down, keep economic production up, and expand all of our markets into brave new worlds full of as-yet uncharted demographics! We're sailing on the wide accountan-sea!

(Help me. I've sarcasterized myself and I can't stop.)

So, where does that explanation leave your hypothesis? Sucking vacuum on Pluto, I'm afraid. Any country worth the few neurons tied up in the higher beuraucratic (I never could spell that bastard of a word.) functions would be more than eager to spread its money around far and wide, thereby increasing its markets and giving its economy new life. `Running out' of money is absurd: Every economy is playing on the edge of having too much money, because that's where growth lies. A severely deflationary country would be running out of money, but that specific money would quickly become useless and would be replaced.

[Fuel]

Originally posted by Derleth
Fuel, your arguments are intriguing, interesting, and absolutely nonsensical. It takes insight to be as interestingly wrong as you have been, and I only hope I can reduce, instead of compound, your errors.

>Listen, let's start by saying one thing here: not one bloody thing you just said (ok maybe one) was something I did not know. Did you realize that my whole theory was trying to explain why this OUC would NOT work?

You basically have one hypothesis I've gathered from your posts in this thread: The wealthy nations would take advantage of the OUC (Official Universal Currency) by stockpiling it, leading to massive inflation at home and a return to barter economies in the rest of the world. Loans to the third world would be little more than yo-yos: Currency is only good for buying things from the Big Guys, and they don't give it back.

>Well, now I understand why you think i'm a jackass..... you've gotten my theory wrong (which i shouldn't have called a theory, more like thinking out loud). Good job. I never said the U.S. would stockpile money exclusively and indefinately. Did you not see my mention of FDI and loaning back out the money in order to take it back again two-fold???????????????????????? THat's your Christopher Colombus righ there chief. And The reason i mentioned mass inflation is that it would be one reason why this intense stockpiling would NOT work. Then i was asking how maybe it could work if that situation arose where we got stuck with too much money. Here is the quote from my post where i actually said what you just said in your post: "Now, to shed a contrary light on this point: imagine how bad inflation will be domestically after the U.S. stockpiles all this money." Notice how i said this was contrary to my previous ramblings???? Do you understand now that i was brainstorming?

OK, right there we see some internal contradictions: How would the currency be worth anything if the first world keeps it mostly among itself? You touch on this concept in your mentions of barter, but I don't think you realize what you've really hit upon here. It's important, so I'll give it its own line.

Money is only worth something when it is used.

It is supremely stupid to stockpile pieces of paper. Or to create unread files in a bank's database. Even gold is worthless, if it is pressed into coins and then locked away in a vault. (Hell, have you ever tried swimming in metal? :D) If the rich nations decided to not spend their money in the outside world, they would only harm themselves. The hypothetical (and, really, unworkable) World Bank would do well to screw the prime rate and just collect all of those physical artifacts, the paper and coins, and burn them in that scenario.

But even that wouldn't work: Money is not printed. Money is not minted. Money is created by the economy. Let me restate that:

Money is created by the economy.

> oh geez, then you go into a painful, but no doubt informative grunt on interest rates.......

Banks create money: Whenever a bank loans out money, they are creating money based on certain rules they follow to avoid losing money. One of those rules is leverage: How much money does the person have access to? Another rule is credit rating: How much can we trust this person? The bank profits off of this money-creation by charging interest: How much more can we make this schmuck pay us than we have paid him?

Interest is of primary importance here: Interest is a direct measure of how much money the economy is creating. The Prime Rate is the ur-interest, the willingness of the Federal Reserve to create money for banks to use. When the Prime Rate is low, banks are encouraged to take money to make money, and they lower their rates as well. That gives Joe Sixpack the incentive he needs to build that new garage with a cheap loan, so he spends money at Lowes, which spends money at the lumber mill, and so it goes, until the economy has too much money. When money is too cheap, inflation sets in. The Fed, if it's doing its job, raisies the Prime Rate, giving banks less of an incentive to create money, giving Joe Sixpack less of an incentive to borrow and spend money.

(Note, again, how I didn't once mention physical artifacts. Everyone, from the Fed down to Joe Sixpack in Yonkers, could be using cryptographically signed e-cash and the system works the exact same way.)

OK, fiddling with the Prime Rate is well and good, but what if we could find a use for more money? What if we could make more money and spend more money, thereby sidestepping inflation altogether? Aha, that's where foreign trade comes in. That's where an expansionary economy becomes immensely valuable. That's when you send Magellan and Drake and Cristoforo Columbo off on crazy adventures to find spices and silks and crazy natives we can subjugate and force-feed manufactured goods from the Motherland as we rape their wilderness. (That, BTW, is Mercantilism.) Spending in the Third World is great! We can keep interest rates down, keep economic production up, and expand all of our markets into brave new worlds full of as-yet uncharted demographics! We're sailing on the wide accountan-sea!

(Help me. I've sarcasterized myself and I can't stop.)

So, where does that explanation leave your hypothesis? Sucking vacuum on Pluto, I'm afraid. Any country worth the few neurons tied up in the higher beuraucratic (I never could spell that bastard of a word.) functions would be more than eager to spread its money around far and wide, thereby increasing its markets and giving its economy new life. `Running out' of money is absurd: Every economy is playing on the edge of having too much money, because that's where growth lies. A severely deflationary country would be running out of money, but that specific money would quickly become useless and would be replaced.

Lesson for you to learn, Derleth, is to make sure you got the other guys' facts straight before you say anything along the lines that you did. But i do appreciate the time you took and your answer was informative nonetheless. Here's a quote from my last post you probably missed: "They would be dead in the water and then we would give them loans/investments to keep them alive and supplying, and then rob them again." I will try to be more organized in my writings in the future to make sure this doesn't happen again.

[Derleth]

Eh, sorry. I guess I won't make that mistake again.