How likely is it that leaders around the world would agree to a new currency, new names for the denominations, that would replace all existing money? Would national pride/identity prevent international agreement? Would rampant inflation in a few countries make this in unviable idea?
How would you, personally, feel about such a currency? Let’s assume TPTB could work out all the kinks in the transition to this currency.
Considering how many conspiracy theories there are about an entirely hypothetical “Amero” that would be a common currency for North America, akin to the Euro, I suspect any attempt at a world-wide version would be met with, shall we say, disapproval? from some sectors.
Given there are continual currency fluctuations between existing currencies, it seems an almost impossible idea.
The EU has had difficulties bringing countries into the Euro.
Monetary policy and exchange rates are a significant part of what governments do. I would rather not Zimbabwe or China or Russia have a voice in what the money is worth.
This would be the equivalent of making all currencies exchangeable. Not all countries want that, for various reasons, good and bad.
Regards,
Shodan
It’s not a matter of ‘national pride’ worrying about the name of a currency or what picture is on it, it’s a matter of countries not being able to set fiscal policies for themselves. If there’s just one worldwide currency, a lot of tools that countries have for managing their economy are just gone, and that would create a lot of problems for both people in those countries and their governments.
A great many Christians would suspect that this is the beginning of some End Times one-world government prophecy. There wouldn’t be a favorable reaction.
To take a slightly contrarian view, for many centuries there was effectively a single currency — gold. (Or silver, but the gold-silver price ratio was held almost constant for many centuries.) It is said that it was a great boon to world trade when the countries of Europe — some of which were using debased coins as money — effectively agreed that gold was to be the basis for international financial transactions. This gold standard (with the Bretton-Woods regime included) continued all the way up until 1968 when the price of gold began inching past its $35 fix.
Yes, floating rates offer much flexibility, but they also create new uncertainties, devaluation risks, and offer scope for rigging the system. The present system may be, on balance, superior to the old gold standard but it is certainly not an unmixed blessing.
(This is now a personal matter for me. Much of our savings are tied to the Thai baht; I am in a hurry to exchange this for real estate and/or gold bars. Sooner rather than later.)
Not to mention that the relative position of a country’s currency is directly integral to their economies.
Making it all unified would have… interesting consequences and a whole lot of regulatory and political wrangling to be done - there’d have to be some kind of central UN bank along the lines of the ECB that would control the money supply, prime rates, etc… How would countries be represented on the board? Would the G7 have effective control? What degree of influence would economically flyspeck countries like Uruguay (GDP somewhere on par with North Dakota) have?
Well, if it wasn’t obvious from my question, I’ve never studied economics. And now I know it’s more than just getting everyone to accept the same size and color of money. Altho my VISA card has been accepted everywhere I’ve used it in my travels… Yeah, I know, not the same thing.
Actually VISA (or any credit card) does help a bit because you are extremely likely to pay different amounts in different countries fro the same sticker price.
You can’t do it without a common central bank, and some sort of common fiscal policy. The euro has a legal treaty control on very broad fiscal objectives (govt. deficit as a % of GDP, and a range within which govt. deficits should stay relative to other member states), but as Greece and other debtor states found out, those can be hard to stick to without much wider and deeper co-ordination of economic and fiscal policies. So there’s a movement that wants to push on to a common economic/fiscal government for the eurozone.
To some extent, that already happens in an emergency if the IMF is brought in: but to make it a continuous process of adjustment, as in a single nation state - and to attempt to do it worldwide? I don’t think so.
It’s a nice idea in theory but has little chance of happening soon. You are aware that many countries in Europe tried this, although countries like England and Denmark retained their currency. And Europe had a long tradition of “ever further integration” on trade, immigration, standards for commercial goods, a common parliament, political statements… until they didn’t.
People are usually proud of, and identify with their country. People want a degree of control over their affairs. Money is an important national symbol. Changes to economic policy allow for theoretical local adjustments for inflation, debt and other issues, although rough. Not all central banks have the same level of independence.
But a common currency means giving up a national symbol, ceding considerable economic control to an unknown body, losing the ability to fine-tune ones economy, economic volatility, and having to educate ones citizens about a new currency while making huge reforms to ones banking and financial systems. It is surprising it ever happened in Europe, and many countries were unhappy with the results.
I think we’re more likely to end up with the opposite: more currencies over time.
The optimal size of a currency zone is going to be dictated by some combination of political boundaries, economic transactions, stability, etc. As technology and credit/financial networks improve, the need to actually use the same underlying currency for actual transactions decreases.
The further global economies move from cash transactions, the less it matters if we carry the same bits of paper, since the transaction can be handled with token exchange and the conversion worked out in efficient markets.
The number of countries globally seems more likely to increase than decrease in the future, so I’d expect to see more national currencies. I’d also expect an increase in… let’s say “domain-based” currencies. Think Bitcoin or other things not tied to a specific geographical location.
Having traveled to a number of places that my Visa card did not just work, the issue isn’t really that you have to change money. It’s that you have to carry so much of it with you.
That “fiscal” (as in “economic”) limitation is partial: countries in a shared banking system (such as the Euro) or with their coin tied to another (such as several Latin American countries at different times) cannot play with printing or buying back their own money (and, if in a shared banking system, are limited on whichever banking policies have been defined as being at the shared level), but can set taxation policies (original definition of “fiscal”), play with their debt and so forth. You make it sound as if they completely lose control of their own wallets.
Consider the Greek financial crisis from 2009 to today.
Since they shared a currency, other Europeans were obligated to lend money to bail out Greece.
Corrupt politicians in Greece caused hardship to taxpayers all over the Eurozone.
Non-Greek politicians imposed conditions on the loans that Greek voters considered extortionate.
A shared currency turned a local problem into a continental problem.
Controlling the supply of money is a major piece of fiscal policy which has been around since Roman times, when the word “fiscus” from which “fiscal” derives referred to the emperor-controlled treasury. Without being able to decide what is legal tender, countries are limited in their taxation policies and ability to borrow money because they don’t actually control the currency. They don’t lose control of their own wallets, but do lose control of their own currency (by definition). The problems that Greece and the EU encountered from Greece’s economic difficulties would have been much less (especially the impact on other EU countries) if Greece had it’s own currency instead of being tied to the Euro.
Exactly this. It’s why some countries have reconsidered or are reconsidering their move to the Euro. It gives some options to countries to be able to devalue or peg their currencies that they don’t have if they are in a common currency that they don’t directly control. It’s not a matter of ‘national pride’ or some other loopy reason that a single currency (an actual, as opposed to the de facto currency of, say, the dollar) isn’t really in the cards.
I’d personally prefer a national currency because I don’t see benefits to a general one. Canadian currency is fairly secure, colourful and has beloved national symbols.
Imagine you lead a country.
If you seek mainly to enrich your friends and family, you would want control of the central bank.
If you are democratic and need to win elections, you want the economy to avoid severe inflation and have reasonable employment and interest rates. You don’t necessarily want a World Bank body dictating unpopular austerity terms to you if things are not going well.
This was one of the weirder iterations of the arguments advanced by the Quebec separatists (oops, sorry: “sovereignty-associationists”). They were telling the Québécois in the run-up to the Referndum that “Well, of course we’ll keep using the Canadian dollar, but since we will be equally sovereign with the Rest of Canada, we’ll have equal seats on the Bank of Canada with the Rest of Canada.”
And the Rest of Canada said: “Wait a minute - you want to leave Canada, yet gain greater control over the Canadian dollar?!?”
“Mais oui!”
I think basic points all made but maybe not at once:
-A single fiat currency without a single govt means the constituent govt’s in the currency can’t set their monetary* policies in line with their fiscal* policies. Monetary policy is determined by the central bank which controls the currency with each govt only influencing that in proportion to their influence in the whole set up. Fiscal policy is still set by the national govt but at least indirectly constrained as the currency union inevitably tries to reduces the tension between collective monetary policy and individual national fiscal policy.
-Related, maintaining the integrity of the multi-national fiat currency tends to put the more fiscally responsible countries indirectly at least in the role of credit guarantor for the less responsible ones.
These are the two reasons the Euro is at best a non-disaster and hardly something the rest of the world is champing at the bit to emulate, especially with much less economic integration (free movement of goods services [much less true in Eurozone than goods], capital, people, etc) across the globe than within the Eurozone.
One way around the second problem is a gold or other non-fiat global money standard. In the classic gold standard period from around 1880-1914 there kind of was a world currency, gold, in that a very large % of world GDP was in countries (or their colonies) with currency values fixed to gold and therefore to each other. You had to exchange USD for GBP, but the rate was always USD 4.867:1GBP so the fact they were nominally not the same currency made less difference. Although, both govts maintained the right to break that relationship as the US did in the Civil War (rate went up as high as 10) and the British did in WWI (sank to 3.66), which was much easier to do than breaking up an actual single currency.
Anyway, gold based money doesn’t solve the first problem. But it’s fair to recognize that fixed exchange rates, via a gold standard, do largely achieve at least one thing which is billed as a positive aspect of the Euro, eliminate or at least greatly reduce exchange rate risk, and you generally assume there’s some cost to any risk. There’s just other problems fixed rates cause, plus again the risk of changing exchange rates doesn’t go away, it just would happen in big jumps when a country in the system is forced to drop out. The good news/bad news of a system like the Euro is how colossally expensive it would be for all concerned for a major participant to drop out, which makes everyone work harder to avoid that, but doesn’t mean a big chronically slow growing fiscally profligate member (ie Italy) won’t some day still have to drop out, and it will be a real shit bomb if they do.
*one might quibble about dictionary definitions of these two terms but in common usage in finance and economics, to take the US as example, monetary policy is what the quasi-independent Federal Reserve Bank does in setting interest rates and money supply, fiscal policy is what the legislative and executive branches do in setting spending and taxes.