One World Currency with each nation having the right to print money would be a huge boon to impoverished nations, rogue states, tin-pot dictators and kleptocracies. They’d just run the presses 24/7 to create as much money as they needed.
Which would unbalance and undermine the world economy.
Tremendously bad idea all around.
Gold Pressed Latinum, perhaps?
Thanks for the post.
How about a different valuation, then? What would have happened if Argentina had just pegged the ratio differently from the get-go, and had a weaker currency? Could they have secured the benefits of a hard standard, without the drawbacks of the strong peso? What are your thoughts on that?
This has already been partly covered by other posters.
Different economies have different needs. Even if the original peg had been arranged differently, the economies of Argentina and the United States would not have moved in tandem. And in fact, even at 1-to-1, the peg lasted more than a decade. It was only after Greenspan started tinkering with US monetary policy in the wake of the dot-com bubble’s collapse that the pressure became unbearable. No matter what the original peg, these differences in the economic environment will creep in over the years, and often to the detriment of the country that has given up its monetary independence.
This isn’t always the case, of course. China seemed to have some success in pegging its yuan to the USD (this is why some estimates of GDP still put Japan as the second largest economy in the world instead of China; China’s currency is still somewhat undervalued according to PPP (purchasing power parity)). So, yeah, maybe it would’ve been possible to maintain the Argentine peg with smarter policy.
But if they had had smarter policy to begin with, they wouldn’t have originally needed to resort to the peg to eliminate their 3,000% yearly inflation. This is extremely similar to why countries likely wouldn’t have success returning to a gold standard. If people distrust the currency, they’ll exchange the currency for gold immediately, which will in turn weaken confidence in the currency, causing a vicious cycle that can quickly deplete a nation’s gold reserves. And no more gold means no more gold standard. But if the country’s currency had actually been stable in the first place, then there would have been no calls for them to create a gold standard to fix their problems.
These sorts of superficial quick-fixes don’t work without good policy behind them. But if you’ve got good policy, then you don’t need to consider these options at all.
Thanks for the post.
Yes, of course, there needs to be some sort of transition plan from 3000% inflation to stability whereby a number of different things are changed simultaneously. And perhaps temporary restrictions on things like currency exchange. It’s difficult to imagine going through such a discontinuity without transition measures. But 3000% inflation would seem to clearly indicate control of the currency is non-existant.
But wouldn’t a basketful of ‘good policy’ measures also be a complicated, tough sell at such a time? I’m not sure exactly what you would propose. Or ‘would have proposed’. Would you mind fleshing out a few ideas, for my edification?
This is true. And a peg is quite possibly a good intermediate step to take. But it’s important to remember the disadvantages. There are always trade-offs.
Good policy involves not getting into the mess in the first place. But if that’s too late? I’m not sure what I would propose. I’m a pragmatist. I believe in whatever works, and that has a tendency to vary somewhat from situation to situation. Maybe pegging their currency was a good first step for Argentina. But it didn’t work in the long run, and I personally can’t say for sure what they should’ve done differently. At that point, you’d want a real expert on the nature of the Argentine economy to step in and lay out the facts. I’ve had some formal economic training, but I’m not a professional.
Maybe they did precisely what they should’ve done: move away from the US dollar standard when it was no longer beneficial. They might have been precisely right to do that, take a sharp blow from the fallout, and then try to recover afterward. It’s hard to say for sure.
But to give you one additional example of how countries can stem hyperinflation, we can look at Weimar Germany. The Papiermark (literally: Papermark) was in serious trouble, so they created a temporary currency, the Rentenmark, which was backed by mortgages on lots and lots of land and goods. They pegged their new Rentenmark to the Papiermark at a rate of 1-to-1,000,000,000,000 (yeah, 12 zeroes, a cool trillion). After the temporary Rentenmark stabilized prices, they introduced the Reichsmark which was backed by gold. And the gold standard worked for them, at least for a little while.
But of course, Germany was an industrialized country. It already had the valuable land and goods it could use as temporary backing, and most important, it had the people, the human beings who had plenty of experience navigating a relatively advanced technological society. This is the same reason they were able to recover so quickly after the war. The Marshall plan was great, but a technically savvy populace eager to regain their former standard of living was also a requirement.
This is an important fact that is sometimes forgotten in today’s breathtakingly stupid attempts of post-war modernization (another apparent requirement for modernization is cultural homogeneity, but that’s another topic).
It’s impossible for me to say, though, whether Weimar Germany’s success in stabilizing their currency could’ve been directly copied. I do know that Jeffrey Sachs (author of The End of Poverty, which is an interesting book even if it seems a bit naive) was a student of the Weimar hyperinflation, and that he used his knowledge of that situation to stabilize Bolivia’s currency in the 1980s. But Sachs also says that each situation is unique. You diagnose an economy like you diagnose a sick person. You study up, look at the symptoms, and then come up with a treatment specific to the problems facing you.
And so if you want answers to any more specific questions about specific countries, you’ll have to turn to professionals with personal experience and lots of data. All I can give is a brief overview of interesting events of the past, a taste of economic history. I can’t tell you precisely what the best policy actually is in a case-by-case basis because I’m simply not qualified.
Welcome to the SDMB Pimms.
If you look at the top of the screen, just under the big blue “The Straight Dope” banner, you will see a smaller one in red, reading “Fighting Ignorance Since 1973 (It’s taking longer then we thought)”
Around here, that’s a bit more then just a smart aleck tag. In a very loose way, it’s the motto of the board. People start posts because they want to learn. While your “no” answer isn’t breaking any of the board rules (I don’t think) it’s not really in the spirit of this place.
In short, multiple currencies floating is indeed a defense mechanism, a way to keep flexibility.
Until we reach a virtual global economic utopia using some hypothetical bulletproof techniques, a global currency is a bad idea and a pipe dream.
Is that a valid assessment?
I think the biggest problem with a single currency would be deciding how to control the money supply.
Would each country get an equal vote? Smaller countries would love that. Larger countries would hate it.
Would it be proportional to population? Larger countries would love that. Smaller countries would hate it.
Industrialized countries would have a different agenda than agrarian countries; socialist countries would have a different agenda than cutthroat-capitalist countries; and each would accuse the others of conspiring to rig the system.
Would the decision-makers serve a fixed term (meaning, if they screw up early in their term, you are stuck with them) or would they be directly accountable to the citizens (meaning, they would have to appease the whims of the mob to stay in office)? Europeans and U.S.A.ians would have drastically different ideas about the proper way to run the system. And Africans and Asians and Latin Americans would have even more differences of opinion.
Yep, that’s the short version.
I would be happy with a single Irish currency, north and south. It’s a pain in the arse having a currency I can use all over Europe but not up the road.