Universal currency is not viable

A universal currency would not be viable and that the biggest issues with using such a currency is not purely political.

Matthew Hillebrand, a fellow classmate of mine, wrote a really interesting blog post today arguing for the use of a universal currency. In his post, he stated that the world would greatly benefit from the implementation of a global currency because the world would be economically united, and that a system similar to the United Nations and Eurozone could work as the governing body of this currency. Furthermore, he stated that the biggest challenge to this system is political. However, I would like to argue that a universal currency would not be viable and that the biggest issues with using such a currency is not just political.

One of the biggest disadvantages from the use a global currency is in fact, the unification of our monetary systems. To implement a universal currency, we would first have to establish a fair entity that oversees the creation and regulation of the currency. The key difficulty with such an entity lies in the word “fair”. It is difficult to determine what country would hold how much power within this organization. Matthew argues that we should have countries with large economies hold permanent decision power while smaller economies will rotate. This would not only be unfair to the small economies but would incite backlash from many of them; then they certainly would not willingly adopt the currency. But if every country in the world held equal power within the organization, that would not be fair the large economies either.

If we somehow overcame these differences and created a fair regulatory body for the currency, to adopt a single global currency means for every country in the world to relinquish the ability to conduct their own monetary policy. A country would no long be able to attract investment through interest rate manipulation. There would be no foreign exchange tools for boosting one’s export potential. There would also be nothing to control the flow of capital in and out of a country. Perhaps the governing entity of the universal currency would intervene to assist certain countries in certain situations, but in doing so would undermine its impartiality. Because most actions to moderate the flow of capital leads to winners and losers, it would always undermine the organization’s “fairness”.

Another big problem that arises with the unification of our monetary systems is that economic crises from one country would have a much greater impact on other countries. This is a story we are all too familiar with in Europe. European countries with bad financial reputations have been scrutinized by their neighbors and have made headlines over and over since the adoption of the Euro; Greece has for years been painted by media as a ticking time bomb for the Eurozone (Washington Post). If we had a global currency, how many ticking time bombs would we have?

All of the above problems would give incentives for countries to either kick financially unstable countries from the currency zone, or voluntarily leave to regain power over a domestic currency. It is not only difficult to implement a universal currency, it is also extremely easy for the system to fall apart. For such a currency to work, our world would have to first be run under a single utopian government.

 

8 thoughts on “Universal currency is not viable

  1. Jake Weimar

    There are more implications to creating a currency area. Countries lose the individual ability to use monetary policy and in the case of the Eurozone fiscal policy is further limited by strict budget constraints

  2. Craig Friend

    As you explain in the post, the current situation in Europe is exhibit A why universal currency might not be the best idea. One has to consider that signing away your monetary policy leaves your Government, in the case of a recession, attempting to fight with one arm tied behind its back.

  3. Alex Rogel

    What would you say to the suggestion of implementation of a system similar to that of the US House of Representatives. Each country having a number of votes/delegates in proportion to its size (population or physical)?

    1. Hongjun Yu Post author

      I don’t think that system could work very well on a global stage. The thing about U.S. states is that they are far more agreeable with each other compared to how countries are. Not only that, our representatives are democratically elected to represent interests of the people, and I highly doubt that all countries will elect their representatives that way. Which then raises the question of whose interest will these people represent?

  4. Linda Sun

    I agree with your point. At least in the current time using a global currency is not a good idea. Besides what you have pointed out, another big problem is the unequal economy status among different countries. There would exist arbitrage opportunity.

  5. Chang Tian

    This is a really interesting post. The point you made related to monetary policy and financial crisis are quite attractive and convincing. Different countries with various economic structures need distinct monetary and fiscal policies. But as for equality, isn’t it more fair just to compare the comparative advantages among countries in export sectors instead of messing it with different policies regarding to exchange rate?

  6. Max Haskin

    While I agree with all the points you made, it seems like you are supporting the more conventional side of the argument. I think most people would agree that a universal currency is not feasible. So if I were you, I would spend more time addressing the points for universal currency, and then refuting them.

  7. Dan Miller

    The World is certainly not an optimal currency area. Then again, neither is the Eurozone nor the United States when we first adopted the greenback as the standard currency. It would take a significant amount of time before there was anything resembling a stable economy if we were to go for a universal currency.

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