For decades there has been a ground swell of opinions developing in support of a single global currency. With a single global currency, prices worldwide would be denominated in the same unit and could be easily compared. This integration would lead to reinforcing the hegemonic control of a small number of global banking and financial institutions over the process of money creation. This in turn would overshadow the functions of national central banks, encroach on the sovereignty of the nation state, and eventually lead to a new phase of the global debt crisis.
On the other side of the argument is the belief that a global currency based on the existing IMF’s Special Drawing Rights (SDRs) arrangement would not fundamentally change the global monetary order. The Indian economy is recovering faster than expected and is consistently becoming broader-based. According to World Bank’s South Asia Economic Update, India’s economy will grow at 8-9 percent over the next two years. Inflation, rising interest rates, small appreciation in the rupee and continued low growth in high-income countries, however, could weigh on the recovery. Risks to outlook come from volatility in capital inflows, staggering global recovery and inflation shocks. Staggered recovery in high-income developed nations might also adversely affect trade prospects and hit remittance inflows; however, growth prospects continue to be optimistic.
The Indian economy has raised the issue of greater internationalization of the Indian rupee and India needs to proactively take steps to increase the role of the domestic currency in the region. Internationalization of the rupee would also require India to make the rupee fully convertible.
Dear Sisira,
I believe your question is filled with many interesting unsettled discussions. If a single global currency would be optimal; if India should go for a rupee internationalization policy; if internationalization necessarily means adoption a fully convertible policy.
Thinking about the central question "the optimality of a single global currency", we have to define what a single currency would mean. Is it a fiat money issued by a supranational institution? Is the adoption of such currency mandatory by the nations which signed the eventual supranational agreement?
I could purpose more questions than provide final answers but I hope I give at least a little contribution to this discussion; that is on an issue I am currently working on.
The Single Global Currency must be managed by a Global Central Bank within a Global Monetary Union. As every currency in the world today is a fiat currency, that would likely be the course for the SGC.
Please see the 2014 edition of my book, "The Single Global Currency - Common Cents for the World," for the many advantages of an SGC. For example, to respond to one part of Sisira's comments, there would be no problem with capital flows, as that is a foreign exchange problem, rather than an economic problem. Within a currency area, there are no capital flow problems.
To Daniel's question, the Global Monetary Union would operate very much like the European Monetary Union and the Eastern Caribbean Monetary Union and other monetary unions. The European Monetary Union now has 18 member countries. If such a monetary union can provide stable money for 18 countries, why can't we develop a Global Monetary Union for 193 countries? In such a monetary union there would be no currency fluctuations, no currencies crises, no foreign exchange transaction costs (now running at about $300 billion annually) and no need to maintain trillions of dollars worth of currency reserves.
Morrison Bonpasse
Single Global Currency Assn.
Newcastle, Maine USA
In my understanding the real problem of Single Global Currency (SGC) is not the financial one.
Under a SGC, firms of all nations make employment contract with a unified denomination unit. Relative wage rates between countries become more rigid and it will be difficult to change them even in the time an adjustment is necessary.
A nation's productivity growth is not of the same pace. Some countries' productivity growth rate stays higher than that of others for a long time. In this situation, change of relative wage rate becomes inevitable if one country want to keep trade balance. Financially this causes no problem but if one country's trade balance becomes largely deficit, it normally means high rate of unemployment.
Before the SGC, each country could appeal to the devaluation of their currency and give a big spurt to the export. This policy tool is deprived by the introduction of a SGC.
Without a global government and global transfer of incomes, a SGC will signify narrowing policy means that a national government possesses. Remind why EU with Euro is suffering so much.
Yoshinori Shiozawa raises several good questions.
The Single Global Currency (SGC) would provide an easy way for workers to compare their wages with those of comparable jobs in other countries. Today, currency fluctuations prevent such comparisons over time.
With an SGC, a country which becomes more productive will become more wealthy, but there is no reason for such productivity changes to mean a change in the value of a currency.
Yes, an SGC does remove a monetary policy tool now used by countries not in monetary unions, but it's a policy tool that has often been abused by governments. Devaluation may help exporters, temporarily, but it hurts importers and it hurts the savings of people and organizations in the devalued currency.
What several countries in the Eurozone have learned is that they must prudently use other fiscal tools to manage their economies, without abusing their currencies. For example, real estate or construction bubbles can be controlled by changing the construction permit process, or changing the down-payment requirements for mortgages or changing the tax deductibility for some expenses.
What the people of the world want is stable money, not money that changes value daily on the foreign exchange markets.
At some point in the distant future a global single currency may be a good idea.
Let's use Euro as model, and scale up. In order to join the Euro-zone, EU members were required to achieve a quite high level of convergence in terms of interest rates, inflation rates, public finance discipline, price stability. Apparently it was not enough, if we take Greek crisis as a negative outcome. However, in terms of economic system Greece is far closer to Germany than US with Somalia. Within Euro-zone there is free trade, free circulation of labor, free capital circulation, that allows to some extent for imbalances sort themselves using market mechanisms. Low wages in one country generate workforce to flow out, and capital to flow in, at some point probably managing to balance the productivity of labor to similar level within whole EU. One of the reasons there is a crisis in Greece is the fable redistribution policy of EU, allowing for economic imbalances within Euro-Zone to develop in the first case. A redistribution policy, free trade, free circulation of labor and capitals, and economic convergence are needed for allowing a single currency to be used. That's the distant future i am talking about.
It is a good idea to have a single global currency, but that bank that is responsible for it will control the global market, and that is a real problem.
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