In January of 1988, The Economist published a cover story predicting that in 30 years’ time a world currency would be in place; a universal currency that would be the next generation of money. The Economist highlighted that such a move would be beneficial to consumers and businesses as prices would no longer be paid for in US Dollars, Yen, or Pound Sterling. Back then, they called this new age currency idea Phoenix coin.
After 30 years, revisiting the idea of a universal currency is exciting – especially as many argue that Bitcoin is Phoenix Coin. This also explains the fact that singular currencies are not a new idea. It is often argued that the first global currency was the Spanish Dollar. It had widespread usage in China where silver bullion was the only accepted foreign commodity, and in the Americas where they are most commonly referred to as pieces of eight.
In this article, we’ll explore the possibility of a Universal Currency and its impact on the global economy.
Which Countries Would Benefit
There would be a little something for everyone with a global currency. Developed nations would benefit directly since there would be no currency risk in international trade. Besides, there would be a level global playing field, since nations like China would no longer use currency exchange as a means to make their goods cheaper on the global market. That would put an end to trade wars and currency crises.
As an example, many point to Germany as being one of the big winners in the introduction of the Euro. Large German firms, which were already some of the most dominant in the world, suddenly had an even playing field. Southern European nations began to demand more German goods, and all of this new money coming into Germany led to considerable prosperity.
Developing countries would benefit considerably with the introduction of a stable currency which would form a base for future economic development.
Loss of Independent Monetary Policies
The obvious downfall of a universal currency is the loss of independent monetary policy to regulate national economies. During an economic crisis, it will be challenging to make decisions like lowering interest rates or taxes. These actions help decrease the severity of the recession and global financial crises. Without monetary policies, there may be a crisis in trade and unwarranted inflation that would rise every year.
Under a global currency, there would be passive management of a national economy and monetary policy would not be enacted on a country by country basis. Rather, any change in monetary policy would be made at a worldwide level. The economy of each nation differs significantly and requires different management and policies. Subjecting all countries to one monetary policy would lead to policy decisions which would benefit developed countries at the expense of the developing and third world ones.
Access and Control
The supply and printing of a global currency would have to be regulated by a central banking authority, as is the case for all major currencies. To consider the case of a centralized governing body that regulates the universal currency, we take the case of the Euro.
The Euro is regulated by a supranational entity, the European Central Bank (ECB). This central bank was established through a treaty among members of the European Monetary Union. To avoid political bias, the European Central Bank does not exclusively answer to any particular country. The ECB is required to make regular reports of its actions to the European Parliament, and several other supranational groups. This means that the governing body would need enough chairs to represent all nations and there would be a challenge in making decisions unanimously. This would lead to conflict and a delay in judgement and drafting of policies.
In the current situation, implementing a single currency worldwide is challenging and highly impractical. A mixed approach, however, would work in this situation. A centrally issued and globally recognized digital currency could boost trade and pave the way for a universal currency.
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