A world currency – Pros and cons and can it become a reality

In one of my previous articles on an economic and monetary union, we had discussed the possibility of the Eurodollar becoming a future world currency. Let’s explore this fanciful idea further and reason out the pros and cons of such a currency and what experts have really proposed.

To begin with a world currency and a local currency may be viewed as two opposite ends of the currency spectrum. The Euro may be seen as a currency that is somewhere in the middle as it was formed by uniting a number of local currencies.

The concept of pegging local currencies to the US dollar, the Euro, Pound Sterling or any other currency also indicates that these local currencies are in reality a shadow of their parent currencies. These currencies can virtually be replaced by the currency they are pegged to. Going by this line of argument, the world of currencies may actually be a much smaller place than it appears, making the leap towards a world currency a bit shorter.

In fact the US dollar and to some extent the Euro are representative of world currencies as nearly 65% of global central bank reserves are held in US dollars, while around 25% are in euros. Nearly 60% of international financial transactions are denominated in US dollars, making it a global medium of exchange. The emergence of the Euro since 1999 has given the US dollar tough competition. It has been estimated that since early 2007 the value of Euro notes in circulation has risen to over € 600 billion, making it the currency with highest value of cash in circulation in the world!

Economists have proposed several variants of a world currency like the Terra, digital gold currency backed by gold, the Eurodollar formed by the union of the Euro and the dollar, extension of SDRs or the IMF backed currency called Special Drawing Rights. The formation of any such currency would have to be backed by a supreme Central Bank.

The Terra is one such world currency that was proposed by the Belgian economist Bernard A. Lietaer. The Terra was to be based on a basket of 12 key commodities that could be considered essential for today’s world. These include,  30% gold, 2 kg grain, 200 g meat,  1 L wine, 3 kg steel, 200 g cotton wool, 200 g copper, 10 kWh of electricity and half an hour of labour.  The Terra was expected to be a currency that would be free from inflation.

Benefits of a single world currency
A single world currency could bring with it substantial benefits such as:

  • Elimination of transaction costs related to trading currencies
  • Do away with the need of maintaining forex reserves
  • Do away with currency risk, benefiting foreign investors
  • Eliminate the chance of currency failure, which would make foreign investment decisions much easier in emerging economies
  • Such a currency would in one go eliminate the problem of current account deficits as there would be no need for foreign exchange

While, the benefits seem immense, such a currency could virtually do away with the need for forex trading!! But, forex traders can relax for now as the adoption of such a currency is not a likelihood in the near future due to the vast variations in global political and economic structures. Some of the key reasons that go against a single currency include:

  • Loss of national monetary policy – A single currency would imply a single interest rate. Thus, a region or nation experiencing economic depression will be unable to use the interest rate lever to boost the economy. Similarly a country with high inflation will be unable to independently raise interest rates to contain inflation. Moreover, Islamic countries, which form a large part of the geography, do not believe in interest rates!!
  • Political barriers – Political differences between nations make it extremely difficult for them to adopt a common currency. It can lead to a loss in political sovereignty as monetary interests would need to surpass political interests. This is unlikely to be acceptable to most of the nations and the idea of a single currency may be difficult to implement.  
  • Eliminateworldmoney

    http://www.eliminateworldmoney.com is a website that might have some of the answers to the world money problems. There is an email and a facebook fan page. 

  • MorrisonBonpasse

    Nobel Laureate Robert Mundell is known as one of the fathers of the euro and has long been a proponent of a Single Global Currency, and he believes that the pro’s vastly outweigh the con’s.
    The Single Global Currency Association promotes the implementation of a Single Global Currency, with a Global Central bank, by the year 2024. With the successful use of the euro and other common currencies, more and more people and organizations and nations are seeing the advantages of monetary unions. Our website is at http://www.singleglobalcurrency.org.
    The Association recently published the 2008 Edition of my book, The Single Global Currency – Common Cents for the World. A copy of the 2007 edition is available at the Munchen personal archive at http://mpra.ub.uni-muenchen.de/5879/. and on the Association’s website.
    The goal of 2024 is only 16 years away. If one looks at the world before the 2002 distribution of the euro to the people of the EMU, you would have seen in 1986 a Europe with a Soviet Union, an East Germany and a Berlin Wall. At that time, most Europeans would have scoffed at the idea of a new monetary union.
    The benefits of a Single Global Currency include:
    - Zero transaction costs to exchange currencies. Presently, $3.2 trillion is traded every trading day and all this trading and its associated costs, approximately $400 billion annually, can be eliminated.
    - The end of currency fluctuations and currency speculation.
    - The end of “Balance of Payments”, “Current Account” and “global imbalances” problems for currency areas. There will, of course, still be trade and wealth inequalities, and more visibly; but they will not be compounded by the problem of foreign exchange transactions and reserve requirements. There would be no need for countries to maintain international reserves of other currencies.
    - Zero manipulation by countries of their currencies, and thus no more need to cajole and jawbone any particular country or currency area about the value of its currency.
    - Zero risk of national and regional currency crises such as occurred in the 1990′s in Mexico, Argentina, Malaysia, South Korea and Russia.
    - Minimal inflation, assuming that the future global central bank sets and achieves a low inflation rate, just as the European Central Bank has done. It’s not clear that a zero inflation rate can be secured, as that would bring an economy perilously close to deflation and a deflation spiral, but certainly a low rate of inflation would be better for the world than the current rates.
    - Worldwide asset values will increase by about $36 trillion due to the elimination of currency risk. Such an increase in asset values will cause annual worldwide GDP to increase by about $9 trillion.
    - With no currrency risk, worldwide interest rates would be lower.
    - With zero risk of currency failure and zero manipulation and minimal inflation, the Single Global Currency would satisfy the moral obligation that a stable currency should be considered as a fundamental human right, as is the right to own property. A Single Global Currency would be far more stable than the currencies presently used by billions of human beings
    While all these benefits are expected upon the implementation of a Single Global Currency, considerable benefits will also come during the implementation processes which will see the reduction of national currencies as predicted and welcomed recently by Benn Steil in Foreign Affairs.
    Of course, not all economists agree with the goal of a single global currency. For those who would label the single global currency utopian, we call their attention to the euro, which began as a plan only about 30 years ago. Who would have thought in the 1970′s that Europe would not only adopt a common currency, but also that its member countries would discard their old currencies?
    The single global currency might be an enlarged transformation of one of the current major currencies (dollar, euro, yen), perhaps with a new name such as “dey”, “eartha”, “geo”,”globo” or “worldo” or it might be a new currency with such a name. How we get to that point is, of course, a major challenge, but there are several possible routes. One is to continue the trend of creating and expanding regional monetary unions, and then combine those monetary unions into one. Another is for smaller countries to continue to “ize” their nations’ legal tender, as in “dollarize” and “euroize”, as has been done in El Salvador and Monaco. Compatible with all these and other routes is the need to convene an international monetary conference of nations, monetary unions and related organizations, and begin planning for the implementation of a single global currency.
    Organizations such as the IMF and the Bank for International Settlements, and individual economists should begin to carefully research and write about the benefits claimed above for the Single Global Currency, and about the costs, too. When the vast benefits become better known, the people of the world will demand a Single Global Currency and ask why we have been burdened so long with the existing multicurrency system, which Robert Mundell describes as “absurd.”

  • MorrisonBonpasse

    Nobel Laureate Robert Mundell is known as one of the fathers of the euro and has long been a proponent of a Single Global Currency, and he believes that the pro’s vastly outweigh the con’s.
    The Single Global Currency Association promotes the implementation of a Single Global Currency, with a Global Central bank, by the year 2024. With the successful use of the euro and other common currencies, more and more people and organizations and nations are seeing the advantages of monetary unions. Our website is at http://www.singleglobalcurrency.org.
    The Association recently published the 2008 Edition of my book, The Single Global Currency – Common Cents for the World. A copy of the 2007 edition is available at the Munchen personal archive at http://mpra.ub.uni-muenchen.de/5879/. and on the Association’s website.
    The goal of 2024 is only 16 years away. If one looks at the world before the 2002 distribution of the euro to the people of the EMU, you would have seen in 1986 a Europe with a Soviet Union, an East Germany and a Berlin Wall. At that time, most Europeans would have scoffed at the idea of a new monetary union.
    The benefits of a Single Global Currency include:
    - Zero transaction costs to exchange currencies. Presently, $3.2 trillion is traded every trading day and all this trading and its associated costs, approximately $400 billion annually, can be eliminated.
    - The end of currency fluctuations and currency speculation.
    - The end of “Balance of Payments”, “Current Account” and “global imbalances” problems for currency areas. There will, of course, still be trade and wealth inequalities, and more visibly; but they will not be compounded by the problem of foreign exchange transactions and reserve requirements. There would be no need for countries to maintain international reserves of other currencies.
    - Zero manipulation by countries of their currencies, and thus no more need to cajole and jawbone any particular country or currency area about the value of its currency.
    - Zero risk of national and regional currency crises such as occurred in the 1990′s in Mexico, Argentina, Malaysia, South Korea and Russia.
    - Minimal inflation, assuming that the future global central bank sets and achieves a low inflation rate, just as the European Central Bank has done. It’s not clear that a zero inflation rate can be secured, as that would bring an economy perilously close to deflation and a deflation spiral, but certainly a low rate of inflation would be better for the world than the current rates.
    - Worldwide asset values will increase by about $36 trillion due to the elimination of currency risk. Such an increase in asset values will cause annual worldwide GDP to increase by about $9 trillion.
    - With no currrency risk, worldwide interest rates would be lower.
    - With zero risk of currency failure and zero manipulation and minimal inflation, the Single Global Currency would satisfy the moral obligation that a stable currency should be considered as a fundamental human right, as is the right to own property. A Single Global Currency would be far more stable than the currencies presently used by billions of human beings
    While all these benefits are expected upon the implementation of a Single Global Currency, considerable benefits will also come during the implementation processes which will see the reduction of national currencies as predicted and welcomed recently by Benn Steil in Foreign Affairs.
    Of course, not all economists agree with the goal of a single global currency. For those who would label the single global currency utopian, we call their attention to the euro, which began as a plan only about 30 years ago. Who would have thought in the 1970′s that Europe would not only adopt a common currency, but also that its member countries would discard their old currencies?
    The single global currency might be an enlarged transformation of one of the current major currencies (dollar, euro, yen), perhaps with a new name such as “dey”, “eartha”, “geo”,”globo” or “worldo” or it might be a new currency with such a name. How we get to that point is, of course, a major challenge, but there are several possible routes. One is to continue the trend of creating and expanding regional monetary unions, and then combine those monetary unions into one. Another is for smaller countries to continue to “ize” their nations’ legal tender, as in “dollarize” and “euroize”, as has been done in El Salvador and Monaco. Compatible with all these and other routes is the need to convene an international monetary conference of nations, monetary unions and related organizations, and begin planning for the implementation of a single global currency.
    Organizations such as the IMF and the Bank for International Settlements, and individual economists should begin to carefully research and write about the benefits claimed above for the Single Global Currency, and about the costs, too. When the vast benefits become better known, the people of the world will demand a Single Global Currency and ask why we have been burdened so long with the existing multicurrency system, which Robert Mundell describes as “absurd.”

  • GovtMediaLiars

    Yes, sounds like a brilliant plan. The new global central bank can then cause a global “great depression” ala 1930′s America and its Federal Reserve. While there may be benefits to such an arrangement the risks inherent in such vast centralized power outwiegh them by a good deal.
    When the central bankers and their economists screw up, and they do screw up, economicts is a young science, its much better the consequences of those mistakes are at least somewhat confined.
    I’ll stick with the “absurd” world of competing currencies thank you very much.

  • GovtMediaLiars

    Yes, sounds like a brilliant plan. The new global central bank can then cause a global “great depression” ala 1930′s America and its Federal Reserve. While there may be benefits to such an arrangement the risks inherent in such vast centralized power outwiegh them by a good deal.
    When the central bankers and their economists screw up, and they do screw up, economicts is a young science, its much better the consequences of those mistakes are at least somewhat confined.
    I’ll stick with the “absurd” world of competing currencies thank you very much.

  • luckycharm

    Hmm… Very interesting, but sounds a little utopian. However, I really like the idea. Sure there will be many barriers to climb, but isn’t that what we do here on a daily basis anyway? And by the time we get to 2024 we will be both rich from FX trading and too old to bother anyway. So it’s all good! :)

  • luckycharm

    Hmm… Very interesting, but sounds a little utopian. However, I really like the idea. Sure there will be many barriers to climb, but isn’t that what we do here on a daily basis anyway? And by the time we get to 2024 we will be both rich from FX trading and too old to bother anyway. So it’s all good! :)

  • virtecs

    um…I hate the sound of a one central supreme bank…I like power divided among many. Leaves less potential for abuse. Plus, the dollar is fine. It’s the monetary policies that are affecting it. And I would hate to see what bad political polices would do to a world wide currency…especially considering much of the world is still working on adopting a free market style economy.

  • virtecs

    um…I hate the sound of a one central supreme bank…I like power divided among many. Leaves less potential for abuse. Plus, the dollar is fine. It’s the monetary policies that are affecting it. And I would hate to see what bad political polices would do to a world wide currency…especially considering much of the world is still working on adopting a free market style economy.

  • coolhand37

    EVERYONE SHOULD STEP BACK AND TAKE A LOOK AT WHAT THE FED HAS DONE TO OUR COUNTRY! Do not support any type of “World Currency” made from any type of central bank. All of those who posted on this site and all those who favor any type of world bank is asking to empower the banking cartels which are already in place. I would imagine that these people are either raging liberals or neo-conservatives, who do not have you or your freedom in “their” interests. Don’t let these idiots fool you with their puffed-up intellectual nonsense. Ask yourself the larger question, who will be printing this money, who will decide the supply and demand of the currency. In what way could some world bank have every countries interest in mind at all times.

    Currencies like this are tools that the rich use to destroy the middle-class and the poor. Currency give them the power to cause depression and panic whenever they like by controlling interest rates and the supply of money. Step back and look at the Fed, which was put in place to prevent these things from happening. The Fed has only directly caused these problems, the big banks are the only ones who consistently benefit. The smaller banks get ruined just like the poor and middle-class by these vampires.

    Wake up people, watch “The Creature from Jekyll Island”, “The Money-Makers”. Research the price of gold compared to oil over the last 100 years, especially take a good look at the prices since 1970. Ask yourself why 1%of the population has 99% of the wealth. Ask yourself why a family can no longer support themselves on one income and be considered middle-class in post WWII standards.

  • coolhand37

    EVERYONE SHOULD STEP BACK AND TAKE A LOOK AT WHAT THE FED HAS DONE TO OUR COUNTRY! Do not support any type of “World Currency” made from any type of central bank. All of those who posted on this site and all those who favor any type of world bank is asking to empower the banking cartels which are already in place. I would imagine that these people are either raging liberals or neo-conservatives, who do not have you or your freedom in “their” interests. Don’t let these idiots fool you with their puffed-up intellectual nonsense. Ask yourself the larger question, who will be printing this money, who will decide the supply and demand of the currency. In what way could some world bank have every countries interest in mind at all times.

    Currencies like this are tools that the rich use to destroy the middle-class and the poor. Currency give them the power to cause depression and panic whenever they like by controlling interest rates and the supply of money. Step back and look at the Fed, which was put in place to prevent these things from happening. The Fed has only directly caused these problems, the big banks are the only ones who consistently benefit. The smaller banks get ruined just like the poor and middle-class by these vampires.

    Wake up people, watch “The Creature from Jekyll Island”, “The Money-Makers”. Research the price of gold compared to oil over the last 100 years, especially take a good look at the prices since 1970. Ask yourself why 1%of the population has 99% of the wealth. Ask yourself why a family can no longer support themselves on one income and be considered middle-class in post WWII standards.

  • cuero

    A single currency with zero inflation is impossible since the type of capitalism we practice is driven by the insatiable desire for profit = growth. This means without cheaper manufacturing markets and cheaper raw materials being forever available prices must rise, therefore salaries must rise, therefore this form of capitalism has a built in design error called inflation. Steady state capitalism without excess profits would have to exist first before a global currency and true global economy can exist or work. Trying to hold back and kill inflation as Reagan and Thatcher did is therefore impossible and calling inflation the bogeyman is like calling global warming the fear of the weak. Ignoring inflation or tryhing to surpress it is ignorance. Unfortunately the doctrine of Reagonomics and Thatcherism is the substance of current day university courses and MBA course content world wide. Therefore our central bankers, commercial bankers and economists all believe this tripe.

  • cuero

    A single currency with zero inflation is impossible since the type of capitalism we practice is driven by the insatiable desire for profit = growth. This means without cheaper manufacturing markets and cheaper raw materials being forever available prices must rise, therefore salaries must rise, therefore this form of capitalism has a built in design error called inflation. Steady state capitalism without excess profits would have to exist first before a global currency and true global economy can exist or work. Trying to hold back and kill inflation as Reagan and Thatcher did is therefore impossible and calling inflation the bogeyman is like calling global warming the fear of the weak. Ignoring inflation or tryhing to surpress it is ignorance. Unfortunately the doctrine of Reagonomics and Thatcherism is the substance of current day university courses and MBA course content world wide. Therefore our central bankers, commercial bankers and economists all believe this tripe.

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