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.