what if there was a single worldwide currency
What If There Was a Single Worldwide Currency?
Implementing a single currency for the entire world is, no doubt, an uphill task. But, will it be worth the effort? This Buzzle article discusses the possibility of having a single worldwide currency.
Quick Info
The Euro, launched on 1st January, 1999, is the first single currency shared by more than 335 million of 19 countries of the European Union.
Currency refers to money in circulation. Every country in this world has a unique currency. Similar to the national flag, the national bird, language, etc., it is unique to that particular country and serves as an identity. The world functions due to the exchange of currency between the different countries. There is a reason why the economy of one country is stable while the economy of many others isn't. It is because of variable national currencies that we have a currency converter system, international trade, foreign exchange, foreign investments, etc. That said, different currencies also lead to an unbalanced economic state, inflation, and a myriad other issues.
The global economic situation today is such that there are numerous countries facing turbulent economic conditions, while quite a few are enjoying an upswing and experiencing economic prosperity. Under such circumstances, the concept of having a single global currency, meaning, having an equal, same currency value for all the countries has led to several mixed reactions and reviews. To arrive at an informed opinion, it is essential to understand the pros and cons of a universal currency, which are enlisted in the paragraphs below.
An Introduction
- The idea of having a global currency is not new and had already been proposed by renowned British economist, John Keynes, in the 1940s.
- Keynes was of the opinion that an 'international currency union' might be a fairly good solution to the immediate problem of unstable economies.
- While the proposal was rejected time and again, it certainly prompted governments and decision makers to consider the idea of a single worldwide currency.
- Today, various factors, besides economic policies, have led to the existence of a handful developed countries wielding immense financial power, while a majority of nations are hugely dependent on these for their survival. There is no economic equality despite sharing the same planet.
- Having a single currency may put a stop to economic exploitation and reduce inflation. At the same time, it may result in unfair economic decisions and highly mismanaged governance.
- However, there is no denying that if (a huge if) well-managed, a single currency can bring about a number of beneficial changes, the possible advantages and disadvantages of this system have been discussed below.
The Euro: The Existing Single Currency
- The continent of Europe had devised a single currency system for the Eurozone, called Euro. As of today, it includes 19 countries.
- The Euro is managed by the European Central Bank (ECB), which controls the monetary policy of all the member nations.
- The Euro has functioned well for several years due to the coordination of fiscal policies and economic and monetary integration.
- The central banks of all the nations have combined to form the Eurosystem, which is responsible for managing the monetary policies.
- The fiscal and structural policies have been managed by the individual nations, though coordination of these policies is essential for proper growth and stability of the continent as a whole.
- The Euro has eliminated exchange costs, developed price transparency, and promoted international trade.
- Towards the end of 2009, the continent was plagued in a debt crisis; however, the European Financial Stability Facility helped develop corrective reforms.
- The fact that the Euro has worked well as a single currency for Europe despite certain difficulties, proves that a single global currency will indeed work well for the world; however, it will take much more effort and organization in order to make this happen.
Pros of a Universal Currency
Reduced Inflation
- Since there are no varying currency values, there will be no reduction in the purchasing currency value and no increase in the cost.
- The Central Bank (or whatever unified entity may be agreed upon) will ensure that inflation and interest rates are very low.
- Countries may learn to manage their economies more productively.
Reduced Transaction Costs
- When you travel overseas, you have to get your money exchanged. When goods are exported and imported, there is exchange of money. A business requires to change money in order to exchange goods and services.
- With a single currency, there will be hardly any transaction expenditure.
- Convenience in travel is one of the principal benefits, considering that the world is now a small place and people frequently travel overseas.
No Exchange Rate
- Currency is constantly devalued or its value is increased, depending on the economic situation.
- A single currency will eliminate the requirement of heavy exchange rates, thereby leading to better business and economic growth.
- It will prove highly beneficial for countries with high inflation rates and weak economies, for they will be able to buy goods and services at affordable rates. There would be no currency risk.
- Many countries rely on the devaluation of goods to improve their exports, and a single currency will help erase their debts.
No Price Issues
- With different currencies, there is no price transparency. A product is bought for a particular price in one country, and sold for a higher or lower price, depending on the currency and economy of that country.
- A single currency will eliminate the requirement of setting different prices. The prices can be set at a fair rate, based on labor and raw material.
- It will be easier to purchase goods and services at cheaper rates.
- Countries will not be able to manipulate their currencies to gain advantage over weaker nations.
- It will redress the trade imbalance, since countries would prefer manufacturing and using their own goods, instead of using the goods produced by other countries. This would eliminate the unfair trade practices and help weaker nations to become self-sufficient.
Cons of a Universal Currency
No autonomy
- A single currency would result in countries losing their autonomy and national sovereignty. An absence of independent monetary policies and loss of national sovereignty may create resentment in people's minds.
- It is difficult to set interest rates when a single currency is involved. It will be virtually impossible to set interest rates that will be agreeable to every country.
- There will be no purchasing power and no currency competition.
- With uniform monetary policies, no government will be able to take decisions that are best in their country's interest, i.e., tax cuts, price reduction, etc.
- Productive, developed countries will witness a fall in their trade and revenues, given that they will not be able strengthen their currency value during a bad economic phase.
Financial Crisis
- While some experts vouch that a single currency will eventually result in economic balance, the process could be painfully slow, with a number of pitfalls to be handled.
- The European Union has no doubt, been implementing the Euro for a considerably long time, and has addressed issues, debt crisis, in a fairly practical way. Yet, when it comes to implementing the same throughout the world, much more discipline will be required.
- While trade imbalance helps the developing and poorer countries to a great extent, it may not be significantly beneficial to the developed nations.
- They will start manufacturing their own goods and using them as well, but may not be able to export them to other countries―after all, why would any country purchase the same goods at higher prices when they can produce them on their own?
- While the elimination of duties and taxes on imported goods will be advantageous, in reality, they are likely to cause a messy trade situation.
- A single currency might lead to many people losing their jobs. You might wonder how? There are virtually millions of people who depend on this currency exchange. There are people who work on foreign investments, international exchange, hedge funds, etc. While jobs will be restored eventually, the initial steps of implementing a global currency will create a lot of problems in the job market.
Unstable Governing Structure
- Who is to decide where and how the money will be printed? Who will distribute the money to different countries? And most importantly, who will decide how much is to be given to which country?
- A single currency will require countries to work in unison and cooperated with each other, which may be tricky in certain cases. Leaders and economic experts of different nations will have a myriad of opinions, and it will be highly unlikely that everyone will arrive at a mutually agreeable decision.
- It will take a massive, unified global effort to make this work, and this possibility seems rather far-fetched.
- A global currency may lead to political and social differences of opinion, and a rather unstable governing structure.
Other Barriers
- Despite equal currencies, every country will be in a different stage of economic growth.
- There may be social and political barriers.
- There will be differences of opinion among liberals and conservatives, this may lead to political feuds and further political wrangling, and may be even war.