luminati Review Magazine
There are many pros and cons against the theory of a single one world currency. Many individuals think it is a very good idea while some feel that a single currency will disadvantage many. In fact, the more you delve on this idea the more confused you tend to become. The following are some the pros and cons of a single world currency:
Advantages of A Single World Currency
1. There are many regions and nations in the world that have already taken a step forward in this direction. Latin America, Europe and Asia have already opted to embrace a regional currency to promote and encourage commerce as well as the economy of scale and its efficiency. The use of a single world currency will also make use of physical proximity when it reduces barriers to trading.
One World Currency
2. A single currency will draw a close to currency speculation. It will be easier for people to travel. They would find it very convenient and streamlined to move from one place to another without the bother of exchanging currency of another nation.
3. The International Monetary Fund or the IMF already uses a new form of single currency in its SDR’s or special drawing rights. This is not real currency but a unique type of currencies that are used by members of the IMF. These currencies can be converted into any type of currency the borrower needs.
4. Multiple currencies have a number of associated problems and they lead to imbalances in the global economy, huge volatile capital flows, pressures on exchange rates and an increasing growing excess of reserves that has the potential to lead to a global crisis
5. Small and vulnerable nations will gain a lot from a single world currency. One world currency will give these nations more stability and certainty.
Disadvantages Of A Single World Currency
1. With the introduction of a single world currency in many different nations there will be the rise of divergent economies. Some countries will be doing well and some nations will not be doing well however they will be protecting their individual interests with the same currency. The early phase will be very painful with the loss of some national fiscal tools. There will also be the risk of many nations failing to pay their existing debts. This is one of the present issues the Euro is facing. However with a single currency the results may be different.
2. The introduction of a single world currency may affect national sovereignty to a large extent. Nations would need supreme trust amongst one another to support single currency in the world. The Government would require accepting the loss of certain monetary controls in such environments.
3. The dollar of the USA is losing most of its power as a major global currency in the world. China is not very confident about US ( they hold most of the debts of the nation) printing too much of cash that is in turn reducing the significance of the dollar. It is too early to say if this is one of the prime reasons for the globe to shift to one currency. There are several economists that find a number of currencies more viable than a single currency for the benefit of the world.
4. Presently traders are able to choose the currency they wish to do trading in. This results in competition in currency. With the introduction of a single world currency there will be no competition and an effective monopoly will prevail in society. This is a major cause of concern as a small minority group will land up controlling the whole economy.
In the foreign exchange market and international finance, a world currency, supranational currency, or global currency refers to a currency that is transacted internationally, with no set borders.
Historical and current world
Spanish dollar (17th – 18th centuries)
In the 17th and 18th century, the use of silver Spanish dollars or "pieces of eight" spread from the Spanish territories in the Americas westwards to Asia and eastwards to Europe forming the first worldwide currency. Spain's political supremacy on the world stage, the importance of Spanish commercial routes across the Atlantic and the Pacific, and the coin's quality and purity of silver helped it become internationally accepted for over two centuries. It was legal tender in Spain's Pacific territories of the Philippines, Micronesia, Guam and the Caroline Islands and later in China and other Southeast Asian countries until the mid-19th century. In the Americas it was legal tender in all of South and Central America (except Brazil) as well as in the US and Canada until the mid-19th century. In Europe the Spanish dollar was legal tender in the Iberian Peninsula, in most of Italy including: Milan, the Kingdom of Naples, Sicily, Sardinia, the Franche-Comté (France), and in the Spanish Netherlands. It was also used in other European states including the AustrianHabsburg territories.
Gold Standard (19th – 20th centuries)
Main article: Gold Standard
Prior to and during most of the 19th century, international trade was denominated in terms of currencies that represented weights of gold. Most national currencies at the time were in essence merely different ways of measuring gold weights (much as the yard and the meter both measure length and are related by a constant conversion factor). Hence some assert that gold was the world's first global currency. The emerging collapse of the international gold standard around the time of World War I had significant implications for global trade.
Before 1944, the world reference currency was the United Kingdom's pound sterling. The transition between pound sterling and United States dollar and its impact for central banks was described recently.
In the period following the Bretton Woods Conference of 1944, exchange rates around the world were pegged to the United States dollar, which could be exchanged for a fixed amount of gold. This reinforced the dominance of the US dollar as a global currency.
Since the collapse of the fixed exchange rate regime and the gold standard and the institution of floating exchange rates following the Smithsonian Agreement in 1971, most currencies around the world have no longer been pegged to the United States dollar. However, as the United States has the world's largest economy, most international transactions continue to be conducted with the United States dollar, and it has remained the de facto world currency. According to Robert Gilpin in Global Political Economy: Understanding the International Economic Order (2001): "Somewhere between 40 and 60 percent of international financial transactions are denominated in dollars. For decades the dollar has also been the world's principal reserve currency; in 1996, the dollar accounted for approximately two-thirds of the world's foreign exchange reserves", as compared to about one-quarter held in euros (see Reserve Currency).
Some of the world's currencies are still pegged to the dollar. Some countries, such as Ecuador, El Salvador, and Panama, have gone even further and eliminated their own currency (see dollarization) in favor of the United States dollar.
Only two serious challengers to the status of the United States dollar as a world currency have arisen. During the 1980s, the Japanese yen became increasingly used as an international currency, but that usage diminished with the Japanese recession in the 1990s. More recently, the euro has increasingly competed with the United States dollar in international finance.
The euro inherited its status as a major reserve currency from the German mark (DM) and its contribution to official reserves has increased as banks seek to diversify their reserves and trade in the eurozone expands.
As with the dollar, some of the world's currencies are pegged against the euro. They are usually Eastern European currencies like the Bulgarian lev, plus several west African currencies like the Cape Verdean escudo and the CFA franc. Other European countries, while not being EU members, have adopted the euro due to currency unions with member states, or by unilaterally superseding their own currencies: Andorra, Monaco, Kosovo, Montenegro, San Marino, and Vatican City.
As of December 2006[update], the euro surpassed the dollar in the combined value of cash in circulation. The value of euro notes in circulation has risen to more than €610 billion, equivalent to US$800 billion at the exchange rates at the time. A 2016 report by the World Trade Organisation shows that the worlds energy, food and services trade are made 60% with US dollar and 40% by euro.
As a result of the rapid internationalization of the renminbi, as of 2013 it was the world's 8th most widely traded currency.
At the end of November, 2015, the Chinese renminbi was designated as one of the world's global currencies, and became one of the currency in the currency basket known as special drawing rights.
Recent proposals (21st century)
On 16 March 2009, in connection with the April 2009 G20 summit, the Kremlin called for a supranational reserve currency as part of a reform of the global financial system. In a document containing proposals for the G20 meeting, it suggested that the International Monetary Fund (IMF) (or an Ad Hoc Working Group of G20) should be instructed to carry out specific studies to review the following options:
- Enlargement (diversification) of the list of currencies used as reserve ones, based on agreed measures to promote the development of major regional financial centers. In this context, we should consider possible establishment of specific regional mechanisms which would contribute to reducing volatility of exchange rates of such reserve currencies.
- Introduction of a supra-national reserve currency to be issued by international financial institutions. It seems appropriate to consider the role of IMF in this process and to review the feasibility of and the need for measures to ensure the recognition of SDRs as a "supra-reserve" currency by the whole world community."
On 24 March 2009, Zhou Xiaochuan, President of the People's Bank of China, called for "creative reform of the existing international monetary system towards an international reserve currency," believing it would "significantly reduce the risks of a future crisis and enhance crisis management capability." Zhou suggested that the IMF's special drawing rights (a currency basket comprising dollars, euros, renminbi, yen, and sterling) could serve as a super-sovereign reserve currency, not easily influenced by the policies of individual countries. US President Obama, however, rejected the suggestion stating that "the dollar is extraordinarily strong right now." At the G8 summit in July 2009, the Russian president expressed Russia's desire for a new supranational reserve currency by showing off a coin minted with the words "unity in diversity". The coin, an example of a future world currency, emphasized his call for creating a mix of regional currencies as a way to address the global financial crisis.
On 30 March 2009, at the Second South America-Arab League Summit in Qatar, Venezuelan President Hugo Chavez proposed the creation of a petro-currency. It would be backed by the huge oil reserves of the oil producing countries.
Single world currency
An alternative definition of a world or global currency refers to a hypothetical single global currency or supercurrency, as the proposed terra or the DEY (acronym for Dollar Euro Yen), produced and supported by a central bank which is used for all transactions around the world, regardless of the nationality of the entities (individuals, corporations, governments, or other organizations) involved in the transaction. No such official currency currently exists.
Advocates, notably Keynes, of a global currency often argue that such a currency would not suffer from inflation, which, in extreme cases, has had disastrous effects for economies. In addition, many argue that a single global currency would make conducting international business more efficient and would encourage foreign direct investment (FDI).
There are many different variations of the idea, including a possibility that it would be administered by a global central bank that would define its own monetary standard or that it would be on the gold standard. Supporters often point to the euro as an example of a supranational currency successfully[dubious– discuss] implemented by a union of nations with disparate languages, cultures, and economies.
A limited alternative would be a world reserve currency issued by the International Monetary Fund, as an evolution of the existing special drawing rights and used as reserve assets by all national and regional central banks. On 26 March 2009, a UN panel of expert economists called for a new global currency reserve scheme to replace the current US dollar-based system. The panel's report pointed out that the "greatly expanded SDR (special drawing rights), with regular or cyclically adjusted emissions calibrated to the size of reserve accumulations, could contribute to global stability, economic strength and global equity."
Another world currency was proposed to use conceptual currency to aid the transaction between countries. The basic idea is to utilize the balance of trade to cancel out the currency actually needed to trade.
In addition to the idea of a single world currency, some evidence suggests the world may evolve multiple global currencies that exchange on a singular market system. The rise of digital global currencies owned by privately held companies or groups such as Ven suggest that multiple global currencies may offer wider formats for trade as they gain strength and wider acceptance.
Blockchain offers the possibility that a decentralized system that works with little human intervention could eliminate squabbling over who would administer the world central bank.
Some economists argue that a single world currency is unnecessary, because the U.S. dollar is providing many of the benefits of a world currency while avoiding some of the costs. If the world does not form an optimum currency area, then it would be economically inefficient for the world to share one currency.
Economically incompatible nations
In the present world, nations are not able to work together closely enough to be able to produce and support a common currency. There has to be a high level of trust between different countries before a true world currency could be created. A world currency might even undermine national sovereignty of smaller states.
The interest rate set by the central bank indirectly determines the interest rate customers must pay on their bank loans. This interest rate affects the rate of interest among individuals, investments, and countries. Lending to the poor involves more risk than lending to the rich. As a result of the larger differences in wealth in different areas of the world, a central bank's ability to set interest rate to make the area prosper will be increasingly compromised, since it places wealthiest regions in conflict with the poorest regions in debt.
Usury – the accumulation of interest on loan principal – is prohibited by the texts of some major religions. In Christianity and Judaism, adherents are forbidden to charge interest to other adherents or to the poor (Leviticus 25:35–38; Deuteronomy 23:19). Islam forbids usury, known in Arabic as riba.
Some religious adherents who oppose the paying of interest are currently able to use banking facilities in their countries which regulate interest. An example of this is the Islamic banking system, which is characterized by a nation's central bank setting interest rates for most other transactions.
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External adopters of the US dollar
Currencies pegged to the US dollar
Currencies pegged to the US dollar w/ narrow band
External adopters of the euro
Currencies pegged to the euro
Currencies pegged to the euro w/ narrow bandThe Belarusian ruble is pegged to the euro, Russian ruble and U.S. dollar in a currency basket.