Why not a one-world currency?

Factual Questions
21

This 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.

22

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.

23

Here’s a soothsayer that says the Euro won’t last 6 months.

[ul]:wink: [sup]Problem is he said it in 1999.[/sup][/ul]

24

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.

25

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?

26

On word answer: Albania.

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

27

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

28

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.

29

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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.

30

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.

31

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

32

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?”

33

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…

34

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…

35
  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.
36

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.

37

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?

38

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.

39

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…

40

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.