It would seem more efficient to have a single currency in existence. It would ease commerce and promote globalization.
Is it possible to have a global currency? What conditions would be required and how likely/soon will they be met?
I think there are a lot of countries out there and that adopting a single currency would require a critical mass of countries to relinquish the power (and prestige) of printing your own money (especially if your mug is on it).
For it to work, a global bank would have to issue controlling shares to each country in exchange for those concessions. The mug could stay on as long as the denomination reads 10 Kudos/78 dollars. Along with the shares, printing presses would have to be installed in each country for more control.
How do you stop a country from printing more money than they are entitled to? The global bank could demand control (dead switches, monitors, inspectors) but I doubt this would work. Can anyone think of other ideas? Another question: Is having multiple fluctuating currencies a flaw that the dawn of the global village will eliminate? Or is it a defense mechanism that has proved helpful and is going nowhere?
I’d very much like to know the answer to this one!
Not until the world reaches a much higher level of average stability. Meantime, we already have defacto global currencies in the U.S. dollar and the Euro.
I hate to sound like a homework question but could you please justify your answer?
In fact, I would appreciate it if everybody did this. I think this is a very interesting topic and I know there are some really smart economists on this board. I am ravenous for some good explanations.
Well, what could happen is that countries could abandon their local currency for the Euro. Or the US dollar. There are lots of countries in the world where people would much rather get paid in Euros or dollars rather than the local scrip.
The trouble with this is that if the Euro or the US dollar goes south, your local economy is in trouble too. But that could never happen, right?
Now I have one polish friend so I’m ok with the polish nation. But adopting their lame currency because it sounds like a hiccup strikes me as a really bad idea, Tamerlane.
What’s wrong with Kudos? I read this (free) scifi short story online describing a society where people are paid in Kudos. I think it’s a pretty cool currency name.
No. It would mean giving up the ability to use our money supply as a way to influence the economy–it’s not just a matter of making sure goverments don’t print too much money, it’s about using a tight money policy to slow down an overheating economy and a lose money supply to kickstart a sluggish one. The global economy doesn’t move in unison (though it is interrelated). Do you really want to have to sit through an extral 12 or 18 months of no growth because China’s economy is growing so fast that they won’t loosen up money? Or vice-versa? It’s not just a pride thing.
It would be a horrible idea because it would mean the entire world would have to have a single monetary policy. So if Japan is in a recession and the US is facing an inflationary boom it would be impossible to conduct a monetary policy that would help both economies. Needless to say it would lead to the most awful international disputes between countries over global monetary policy. In the last 40 years or so economists have spent quite a lot of time working on the requirements of optimal currency areas and there is a big debate about, for example, whether the EU countries constitute an OCA. I doubt that there is a single reputable econonomist who thinks the world is an OCA.
No, for the monetary policy issues that Lantern and Mand JO laid out. Some of the OPEC countries peg their currencies to the dollar, and the past year or so has been rough for them as a result.
One suspects that anyone seriously proposing this would neither understand nor accept a reasoned argument against…
So easier to just have my say. In any case I suffer from various forms of autism and find it desperately boring to write about things that do not interest me.
No mate, see the Gold Standard in the late 20th - early 19th centuries. It failed miserably. Monetary unions only work well when most of the “factors of production” - capital and labour most simplistically - can move freely. The US is a good example. The EU is a … unclear example, which might not survive its present form (and which significantly some of the most liberal and flexible members re both capital and labour markets have opted out of the currency).
Look at present economies. Before crisis just to avoid controversies. Some need more liquidity (more money circulating), others needed less (the Gulf region, etc).
A world currency would assume:
(i) total labour flexability (to move to growth areas, as some regions always are more efficient than others)
(ii) total and transparent capital mobility (more achievable but not a sufficient condition)
(iii) reasonably robust economic information globally to allow for (even within the context of a global currency) transfer of liquidity to meet local needs.
None of this exists, and indeed even for say the EU, which I think will work in the end, is in doubt.
Now, add in developing countries? It’s terrible. It would be better for developing countries to return to colonialism than a world currency.
I could “fight” (I am feeling relatively lethargic) said ignorance but why bother? I’m answering the OP - if he is more curious or doesn’t believe me then he can take a course in economics. Or wait for replies from those with more patience. I’m just giving him a quicker answer
If I’m breaking some kind of board etiquette here please tell me though as I don’t want to be doing so!
I’m not calling him an idiot by the way. That would be misplaced and hypocritical.
Actually, it could happen quite easily. And in fact, the reverse scenario has already happened.
Argentina, in an effort to fight the hyperinflation that had been plaguing their monetary system, pegged their currency to the US dollar in the 1990s. In practical effect, this was similar to enacting a gold standard for them, except that the central bank kept US dollars in reserve instead of precious bullion. Still, people could at any time walk in and demand that their peso be converted into a US buck. But eventually the US dollar became too strong.
Argentina used its overly-powerful pegged currency to buy imports from neighboring countries. Food from neighbors was cheaper than domestically grown food. Likewise, they had problems exporting, because no one could afford to purchase Argentine goods. The result was disastrous. The monetary stability they’d gained from having a pegged currency was far outweighed by the suffering economy because of the too-cheap import market.
You are, indeed, violating board etiquette. We fight ignorance here. If you make a claim (even one that seems obvious to you), you need to be able to back it up. The whole point is for people to learn, and they can’t do that if they’re given blanket assertions with no further explanation.
Thanks for the post. And I love the user name. Especially in a Cabernet with a nice bowl of pasta.
Could there have been other factors though, besides a strong currency, that caused Argentina to fail post currency-board? In theory, cheap imports could be used as cheap inputs for high-value-added production. If cheap imports are squandered on consumption or non-valued added activities then I would agree with you.
Countries have often had very strong currencies (e.g. the German D-mark pre-euro, the Japanese yen on occasion) and been exporting powerhouses. They can use their strong currency to their advantage on the import side. But that strength needs to be used intelligently and not wasted.
Even in theory, high-value-added production requires an enormous amount of capital, both physical and human (in the form of high-tech factories and a well-educated populace). You can’t just import raw materials for cheap and turn them into quality manufactured goods overnight. You need infrastructure, and that requires years and years to build.
Comparisons to Germany and Japan are not apposite. Their currencies became strong only after their economic miracles, not before.