Tag Archives: currencies

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.

 

Coke Struggling Overseas

The Atlanta based beverage giant saw its fourth quarter profits down 55%. While domestic sales of Coke are hurting due to an increased focus on healthy eating, the real problem lies abroad. The domestic soda industry has seen sale volumes decrease for the last 10 consecutive years. however, Coke generates a large majority of its profit overseas. In order for Coke to thrive well into the future, I believe they should consider making an acquisition in order to propel growth.

According to the article,  “Coke has been buffeted by sluggish sales and stiff foreign-exchange headwinds in important overseas markets. It said beverage volumes rose just 1% in the fourth quarter and 2% in 2014, the second straight year the company has fallen short of growth targets.” http://www.wsj.com/articles/coke-says-2015-will-be-a-transition-year-1423572751. While there is nothing they can do regarding difficult exchange rates, they could try and diversify through an acquisition. Coke already owns Sprite, Minute Made and Powerade. However, a company of this size could easily add to its portfolio of beverages or even attempt to expand into new products. Coke could attempt to buy or introduce a food that could be coupled with any of the above drinks. While I do not recommend diversifying for the sake of diversification, I do believe they could expand in a way that would enhance shareholder value. According to yahoo fiance and The Coca-Cola Company balance sheet, Coke currently has over $10.4 billion dollars in cash and cash and cash equivalents. This is up from $8.4 billion at year end 2012. http://finance.yahoo.com/q/bs?s=KO+Balance+Sheet&annual.

With ample cash on hand, Coke should seek to use this for productive uses in 2015. Coke has said they expect 2015 to be filled with cost cutting and an attempt to redirect these savings to marketing efforts. While marketing is important, the Coke brand name is known worldwide. Coke is one of the best brand names in the world, which is why they should not be faltering at this point in time. The strengthening of the US dollar relative to other currencies is hurting because of the fact that Coke generates most of its revenue overseas. While this may or may not last, it is important that Coke uses hedging strategies if they believe these currencies are making this big of an impact on profits.

At the end of the day, Coke will be fine. They are a world wide brand with incredible strength. However, the real problem lies with sluggish growth. Growth can be accomplished organically or through an acquisition. I believe Coke has currently squeezed its organic growth dry for the time being. While they attempt to spend more on marketing, I believe they should use this to make an acquisition and propel inorganic growth. If they find the right company, the cost cutting, synergies and increased brand strength created could be incredible.