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Articles- Academic-Previous (by several months): about monetary unions and single global currency and related matters.  For the most recent articles see SGC Links: Articles Academic


This section includes articles from academic publications, or by economists or others elsewhere, including foundations or institutes.

 

31 August 2005.  "Voting Transparency in a Monetary Union"  by Hans Gersbach and Volker Hahn

Abstract.

     We examine whether the central bank council of a monetary union should publish its voting records when members are appointed by national politicians. We show that the publication of voting records lowers overall welfare if the private benefits of holding office are sufficiently low. High private benefits of central bankers lower overall welfare under opacity, as they induce European central bankers to care more about being re-appointed than about beneficial policy outcomes. We show that opacity and low private benefits jointly guarantee the optimal welfare level. Moreover, we suggest that non-renewable terms for national central bankers and delegating the appointment of all council members to a European agency would be desirable.

 

30 August 2005.  "A Single Currency for Pacific Island Countries: An SVAR Analysis" by Bert Ward,  Lincoln University and T.K. Jayaraman, University of the South Pacific and member of Single Global Currency Assn. Advisory Board.

The article concludes...

   "... The OCA criterion, which is a pre-requirement to determine the suitability of the countries for fomring a monetary union, lays down that countries should have experienced a high degree of similarity in shocks affecting them so that a common set of policies, fiscal and monetary as well as common exchange rate would be successfully adopted...

    The logical conclusion is that the time is not ripe for the 14 Pacific Island nations and the two major metropolitan powers to consider a monetary union."

15 August 2005.  Volume 16, No. 1 issue of "Central Banking Journal"

      This quarterly journal is a valuable resource about central banking and monetary unions.  See Table of Contents.  For the contents of issues back to 2002, see Back Issues.

     For the entire index of articles from 1990 through 2005 see ENTIRE INDEXFor an abbreviated version, relating only to monetary union/Single Global Currency-related articles see

SGC INDEX.

12 August 2005.  "Dynamic stock market integration driven by the European Monetary Union: An empirical analysis"

by Suk Joong Kim, Fariborz Moshirian(corresponding author) and Eliza Wu, all of the School of Banking and Finance, University of New South Wales, Sydney, Australia.

Abstract:

We examine the influence of the European Monetary Union (EMU) on the dynamic process of stock market integration over the period 2 January 1989–29 May 2003 using a bivariate EGARCH framework with time-varying conditional correlations. We find that there has been a clear regime shift in European stock market integration with the introduction of the EMU. The EMU has been necessary for stock market integration as unidirectional causality was found. Linear systems regression analysis shows that the increase in both regional and global stock market integration over this period was significantly driven in part, by macroeconomic convergence associated with the introduction of the EMU and financial development levels.

[Professor Moshirian is Editor of the Journal of Multinational Financial Management and gave a presentation at the First Single Global Currency Conference in 2004]

 

3 August 2005.  "Will the Euro Eventually Surpass the Dollar as Leading International Reserve Currency?"   by

Menzie Chinn , Jeffrey Frankel

Abstract:

Might the dollar eventually follow the precedent of the pound and cede its status as leading international reserve currency? Unlike ten years ago, there now exists a credible competitor: the euro. This paper econometrically estimates determinants of the shares of major currencies in the reserve holdings of the world's central banks. Significant factors include: size of the home country, inflation rate (or lagged depreciation trend), exchange rate variability, and size of the relevant home financial center (as measured by the turnover in its foreign exchange market). We have not found that net international debt position is an important determinant. Network externality theories would predict a tipping phenomenon. Indeed we find that the relationship between currency shares and their determinants is nonlinear (which we try to capture with a logistic function, or else with a dummy “leader” variable for the largest country). But changes are felt only with a long lag (we estimate a weight on the preceding year's currency share around .9). The advent of the euro interrupts the continuity of the historical data set. So we estimate parameters on pre-1999 data, and then use them to forecast the EMU era. The equation correctly predicts a (small) narrowing in the gap between the dollar and euro over the period 1999-2004. Whether the euro might in the future rival or surpass the dollar as the world's leading international reserve currency appears to depend on two things: (1) do the United Kingdom and enough other EU members join euroland so that it becomes larger than the US economy, and (2) does US macroeconomic policy eventually undermine confidence in the value of the dollar, in the form of inflation and depreciation. What we learn about functional form and parameter values helps us forecast, contingent on these two developments, how quickly the euro might rise to challenge the dollar. Under two important scenarios the remaining EU members, including the UK, join EMU by 2020 or else the recent depreciation trend of the dollar persists into the future the euro may surpass the dollar as leading international reserve currency by 2022.

[In an unusual incorporation of such an academic article in the non-academic press see the Pakistani Daily Times article: ‘Euro may become top reserve currency by 2022’]

2 August 2005  Journal of Policy Modeling, June 2005,

Special Issue: The Euro, the Dollar and the International Monetary System    Edited by Dominick Salvatore
Included are articles:

"The case for a world currency"  by Robert Mundell, Columbia University

No Abstract provided by journal, but see his 2003 presentation,  "The International Monetary System and the Case for a World Currency" in Warsaw on 23 October 2003, at the Leon Kozminski Academy of Entrepreneurship and Management.

"Small country benefits from monetary union" by Herbert Grubel, Simon Fraser University

Abstract:

    The paper reviews the technical methods available for the hard fixing of currencies and presents evidence from studies of the benefits and costs from monetary unions achieved through hard fixing. The main costs are alleged to arise from the loss of national monetary sovereignty. In fact, these costs are much smaller than is argued traditionally since the exercise of this sovereignty has historically been responsible for many economic shocks. The costs are also shown to be lowered by efficient capital and labor markets that are endogenous to the adoption of hard currency fixes.

   The paper focuses on the discussion of a neglected benefit of hard fixing, which is that small countries enjoy better monetary policy. The improved monetary policy arises because the large institutions to which they surrender their monetary sovereignty are more likely to be free from political influences and partly because they have more financial and human resources to design and execute the best monetary policy. Errors made by the large central banks have less impact on the member countries they serve because of the dominance of intra-union trade and capital flows.

31 July 2005.  On the currency options for countries aiming to join a monetary union:  "Integrated monetary and exchange rate frameworks: are there empirical differences?"

by Lucio Vinhas de Souza

Abstract: The aim of the paper is to empirically estimate whether the different monetary and exchange rate frameworks observed in the accession countries of Central and Eastern Europe and the Baltic States do yield different outcomes in terms of level and variance of a set of nominal and real variables. The author follows and extends the methodology developed by Kuttner and Posen (2001), who perform a combined analysis of the individual effects of exchange rate regimes, central bank independence and announced targets in nominal variables for a large set of developed and developing countries. They also estimate that a set-up combining a free float, an independent currency board and inflation targeting yields an outcome that mimics the price stabilisation advantages of a hard peg without its drawbacks in terms of extreme volatility.

31 July 2005 On the currency options for countries aiming to join a monetary union: "Accession to EMU and exchange rate policies in Central Europe - decision under institutional constraints"  by Andreas Freytag

Abstract: Currently, five Central and Eastern European (CEE) countries are negotiating about the membership in the European Union: Czech Republic, Estonia, Hungary, Poland and Slovak Republic. There is a broad consensus that they will eventually become members of the European Monetary Union. This requires careful analysis of the appropriate exchange rate regime prior to the accession. The exchange rate arrangement of the EU applicants plays an important - but not exclusive - role in their policy-mix. The history of transition economies as well as of other emerging markets illustrates that exchange rate policies as such are not a distinctive factor for the success and failure of monetary policy with respect to price stability. In this paper it is argued that this outcome has not emerged by chance. There is no naturally superior exchange rate regime that can be applied to all advanced countries in transition aiming at stability. By way of contrast, an exchange rate arrangement is part of the monetary regime, which itself is a component of the economic order. The latter consists of both politically chosen and spontaneously evolved institutions. This leads to the hypothesis that the choice of an exchange rate arrangement in CEE is constrained by this institutional setting. The theoretical considerations as well as empirical evidence indeed suggest that for guaranteeing stability, beside the legal monetary commitment (part of which being the exchange rate regime) the institutional framework in the country is decisive. If the latter matches the commitment, the credibility of a monetary regime is relatively high, obviously encouraging monetary stability. Therefore, the institutional setting in each country should be analysed extensively before an exchange rate arrangement is chosen.

26 July 2005.  "Choice of Monetary and Exchange Regimes in ECOWAS: An Optimum Currency Area Analysis"  by Chantal Dupasquier, Patrick N. Osakwe, Shandre M. Thangavelu

There are plans by five West African countries to establish a second monetary zone in the sub-region by December 2009. In this paper we ask whether a monetary union is the appropriate exchange rate regime for the sub-region based on economic criteria. We address the issue using a rigorous theoretical framework that captures the crucial trade-off between the savings in transaction costs, resulting from a common currency, and the macroeconomic stabilization benefits of a flexible exchange rate regime. The main result is that a flexible exchange rate regime dominates a monetary union in the ECOWAS subregion.

[note by SGCA:  Perhaps, however, there are other criteria to evaluate, such as the effect on the values of assets in the affected countries.  See the article (Executive Summary) "Wealth Creation via Currency Unification"  by John Edmunds and John Marthinsen.]

 

20 July 2005. "Long-Run Determinants of Inflation Differentials in a Monetary Union" by Filippo Altissimo , Pierpaolo Benigno , Diego Rodriguez Palenzuela.

Abstract:

This paper analyzes the long-run determinants of inflation differentials in a monetary union. First, we aim at establishing some stylized facts relating the regional dispersion in headline inflation rates in the euro area as well as in the main components of the consumer price index. We find that a relatively large proportion of it occurs in the Service category of the EU's harmonized consumer price index (HICP). We then lay out a model of a monetary union with fully flexible prices, the long-run properties of which are analyzed. Our model departs in several respect from the Balassa-Samuelson hypotheses. Our results are in contrast with the result that movements in the real exchange rate are mainly driven by regionally asymmetric productivity shocks in the traded sectors. Our results point instead to relative variations in productivity in the non-traded sector as the primary cause of price and inflation differentials, with shocks to productivity in the traded sector being largely absorbed by movements in the terms of trade in the regional economies. These shocks are also found to largely drive the variability of real wages at the country level.

18 July 2005.  "One Market, One Money: Evidence from Canada - United States Economic Integration"  by Michael Beine and Serge Coulombe

Abstract:

In this paper, we focus on the evolution of the optimum currency area (OCA) properties between Canada and the United States. To this end, we specifically investigate the relationship between the intra-industry trade dynamics of Canadian provinces with the United States and the increasing level of integration between the two countries from 1980 to 1998. Our findings lead us to support the view that integration (real and monetary) improves the conditions under which a monetary union can yield net gains in the long run for the integrating countries. We also find that exchange rate developments exert asymmetric effects on the Canadian provinces.

 

18 July 2005.  "Monetary integration and the cost of borrowing" by Marta Gome-Puig.

Abstract:

    With the beginning of the European Monetary Union (EMU), euro-area sovereign securities' adjusted spreads over Germany (corrected from the foreign exchange risk) experienced an increase that caused a lower than expected decline in borrowing costs. The objective of this paper is to study what explains that rising. In particular, if it took place a change in the price assigned by markets to domestic (credit risk and/or market liquidity) or to international risk factors. The empirical evidence supports the idea that a change in the market value of liquidity occurred with the EMU. International and default risk play a smaller role.

17 July 2005.  "The European Monetary Union as a Commitment Device for New EU Member States" by Federico Ravenna

Abstract:

We show that the credibility gain from permanently committing to a fixed exchange rate by joining the European Monetary Union can outweigh the loss from giving up independent monetary policy if the domestic monetary authority does not enjoy full credibility. Using a DSGE model, this paper shows that when the central bank enjoys only limited credibility a pegged exchange rate regime yields a lower loss compared to an inflation targeting policy, even if this policy ranking would be reversed in a full-credibility environment. There exists an initial stock of credibility that must be achieved for a policy-maker to adopt inflation targeting over a strict exchange rate targeting regime. Full credibility is not a precondition, but exposure to foreign and financial shocks and high steady state inflation make joining the EMU relatively more attractive for a given level of credibility. The theoretical results are consistent with empirical evidence we provide on the relationship between credibility and monetary regimes using a Bank of England survey of 81 central banks.

 

23 June 2005.  From CEPII:  "Africa Puts Forward its Eco" by Agnes Benassy-Quere.

Abstract:

European monetary union has contributed to projects for monetary union being relaunched in other parts of the world. The most advanced is without any doubt that of the “second” west African monetary union, which binds together five non members countries of the West African Economic and Monetary Union (WAEMU), though the second union is ultimately set to merge with the WAEMU. In 2002, the project for the second union led to the creation of a West African Monetary Zone (WAMZ), and the monetary unification of these five countries is scheduled for 1st July 2005. However, the process of convergence is far from being completed and the union might well be postponed. These problems raise questions about the feasibility of the project and the monetary borders of the region. For each country the costs and benefits are analysed with respect to criteria defined by the theory of optimal currency areas. A summary analysis classifying the countries according to their economic proximity is put forward. This suggests that the WAEMU is a relatively homogenous group, which is not the case for the countries of the WAMZ, whose members thus do not have much interest in rapid monetary unification.

 

25 April 2005.  Robert Mundell speaks at UCLA: "Large Currency Blocs Needed for Stable Development, Nobel Laureate Urges"

The web article by Leslie Evans begins:

    Robert A. Mundell, winner of the Nobel Prize in Economics in 1999 and a professor at Columbia University, spoke at UCLA April 25, where he strongly urged the creation of large international blocs sharing the same currency, such as the euro, as a key means to promote economic development and stability for smaller countries....

 

7 March 2005.  Australian/New Zealand Monetary Union "Visionary currency union or dollar dreams?"

The article begins:

"A trans-Tasman currency union has many advantages. But the political hurdles are formidable and may prove too great, writes Corinne Lim of the Australian Financial Review.

    Should Australia and New Zealand form a common currency? With the leaders of both nations vowing to extend and deepen the Closer Economic Relations treaty, and the Kiwi dollar these days just a few cents short of parity with the Australian dollar, currency union would seem to be the next logical step.

It is a seductive notion, in theory. A currency union would banish exchange-rate uncertainty and thus lower currency conversion costs for companies that do business between the two countries. It would increase trade and investment between the two nations. This is in the spirit of CER."

 

7 March 2005.  "S. Korea, Japan, China Need to Have Common Currency: Think Tank"  (Yonhap News, Korea)

   SEOUL, March 1 (Yonhap) -- South Korea, Japan and China need to review a plan to adopt a common currency system as part of efforts to reduce exchange-rate volatility, a private think tank said Tuesday.

    "The three countries should lose no time in considering introducing a common currency regime to alleviate the burden of increased exchange rate swings," Hyundai Research Institute said in a report.

4 March 2005.  "A COMMON CURRENCY FOR THE PACIFIC REGION: A FEASIBILITY STUDY "   by Kraiwinee Bunyaratavej, Arcadia University, Pennsylvania, and T.K. Jayaraman, University of the South Pacific, Fiji Islands.

Abstract:

The introduction of the euro in 1999 has led to many initiatives in other regions as well. One such region where a currency union has been of interest is the Pacific island countries along with Australia and New Zealand. This paper investigates the degree of economic convergence among these countries and maps out the movement of regional currencies with the core currency, the Australian dollar. It is found that the economies show a trend toward divergence. Nevertheless, most currencies closely moved with the Australian dollar. The evidence suggests such a currency union may be premature at this time.

February 2005.  "ARE THE PACIFIC ISLANDS READY FOR A CURRENCY UNION? An Empirical Study of Degree of Economic Convergence"

by T.K. Jayaraman, University of the South Pacific, Fiji Islands and B.D. Ward and Z.L. Zu, both of Lincoln University, New Zealand.

Abstract:

During the 2003 Annual Meeting of Pacific Forum leaders from the 16 member states (14 Pacific Islands and two advanced countries in the region, namely Australia and New Zealand) held in Auckland, an idea of single currency for the region was mooted. The single currency was indicated to be the Australian dollar. The success of any efforts for achieving such a form of integration depends on the degree of economic convergence of national economies. There are two aspects of convergence: nominal and real. They cover exchange rates, growth rates and inflation rates. Unless there is a high degree of convergence in these spheres, costs of any premature integration could be disastrous. The objective of this paper is to investigate whether the Pacific islands and the two metropolitan countries exhibit any economic convergence and whether there exists any case at present for a currency union. The paper undertakes an empirical investigation, reports the results and presents some conclusions.

February 2005.  "DOLLARISATION OF THE SOUTH PACIFIC ISLAND COUNTRIES: RESULTS OF A PRELIMINARY STUDY by T.K. Jayaraman, University of the South Pacific, Fiji Islands

Abstract:

The paper examines the case for adopting the Australian dollar as a common currency among the island countries in the South Pacific. The proposal of a single currency was informally floated by Australia at the Pacific Forum Leaders Meeting in Auckland, in August 2003. The Pacific Forum consists of 14 developing island countries and the developed countries in the region, namely Australia and New Zealand. In early 2003, a Committee of the Australian Senate recommended adoption of a single currency as a possible remedy to meet the deteriorating economic situations in the Pacific island countries, arising out of poor fiscal discipline and failure to effectively use external aid inflows. Successful adoption of a single currency with either a new currency or an existing currency of a dominant partner in trade and development requires the fulfillment of various pre-requirements, which are well known as optimum currency area conditions. The paper assesses the feasibility of the proposal in the light of these conditions and concludes that the time for adoption has not yet arrived.


27 February "Case for a World Currency: Is an ANZAC Dollar a Logical Step?"  (by Arthur Grimes.  Victoria University of Wellington.  Originally published in Victoria Economic Commentaries, October 2000)

    This article reviews the history of money and cooly shows how a single global currency is optimal for many reasons, especially the reduction in transaction costs.  Especially useful is the comparison of the units of money to units of measurement.   If we want to influence our export numbers, for example, people no longer think of altering the length of a meter or the weight of a kilogram.  Similarly, we should no longer be thinking of debasing national currencies.  He wrote, "Diminishing, or removing the power of sovereign governments to inflate whould be a goal of policy to achieve a stable monetary standard of value." (page 2 of electronic copy, page 18 of published version in Victoria Economic Commentaries )

25 February 2005.  "The Theory of Optimum Currency Area Revisited: Lessons from the Euro/Dollar Competitive Regimes"  (by Manoranjan Dutta at a session of the American Economics Assn. meeting in Philadelphia, 8 January 2005.)

    This article elegantly outlines the regionalization of currencies and shows the reasons for the rise of the euro. 

     With some relevance to the goals of the Single Global Currency Association, he notes that Jean Monnet had the view that politics is also "the art of making possible tomorrow what cannot yet be done today..."

 

24 February 2005 "Currency Options for Emerging Economies: Concepts and Arguments" by Vivek H. Dehejia, Carleton University, Ottowa. (original written, 031101, and revised 040328)

    After reviewing the options, Prof. Dehejia concludes with a nod to the Single Global Currency: 

"There are two considerations:  not so surprising, after all, for an economic theorist.  There are two very different, indeed polar, vision of monetary/exchange rate policy Utopia that I would like to leave you with.  The first comes from the visionary Robert Mundell: "A global economy requires a global currency." [with footnote credit to Paul Volcker]  Unpacking all of the content of this lapidary expression would require a second essay."

[The world looks forward to that "second essay", and will see it posted here.]

8 February 2005 (but written in 2002)  "A Theory of Social Custom of Which Soft Growth May Be One Consequence. Tales of the European Stability Pact"

    This paper by Jean-Paul Fitoussi and Francesco Saraceno, supports Saraceno's belief that a Stability and Growth Pact is not required for a monetary union.  It was implemented for the E.U., but it's not required elsewhere.  From the abstract, they write, "We therefore suggest the view that the stability pact is a social norm, and that adherence to that norm responds in fact to the need to preserve reputation in front of the other members of the European Union."

 

5 February 2005.  Stefan Krause, Asst. Professor at Emory University, and a member of the Board of Directors of the Single Global Currency Assn., writes the first of a series of short essays about the single global currency:  "Why do we need a Single Global Currency?"

     This is the first of what I will hope will become a monthly series of essays, provided that I keep in good health and the well of ideas does not become dry. My objective is to contribute with my little grain of salt to the debate of a Single Global Currency in the world by the year 2024.

     Like I do in most of my undergraduate and graduate courses, I will start with an anecdote. It was around the month of March of 1982: the place, San Jose , Costa Rica . At that time I was 7 years old (almost 8!), and I was in the middle of the worst economic, inflationary, and exchange rate crisis my country ever experienced. Aside from food shortages and a substantial increase in unemployment, within a matter of months the Costa Rica local currency (colon) had undergone a dramatic devaluation: from 8.57 colones per U.S. dollar to over 64 colones per dollar.

      Just to make matters worse, you could not even purchase dollars at the banks. I remembering reading the economics and finance section in one of the local newspapers (La Nacion) and asking my parents what was the difference between tipo de cambio oficial (official exchange rate) and tipo de cambio del mercado paralelo (better known as “black market” exchange rate). After my parents patiently explained the concepts to me, I thought to myself: “Why is there such a huge difference between the two?” Years later I found out it was due to currency trading restrictions, and the fact that the Central Bank of Costa Rica had almost completely ran out of foreign reserves.

      Even though I never quite fully understood this large differential, it didn't take me long to find a “business opportunity”. As it turns out, my sister and I each received 20 Deutschmarks (DM) per month from our grandmother in Germany.   At that time, 20 DMs represented about 8 U.S. dollars. Therefore, I told my sister: “Let me take your money, pool it together with mine, and sell it to one of my German elementary school teachers.” “These teachers are always traveling to Germany , so they need DMs”, I thought. So before I knew it, I had become a foreign currency trader in the black market, at a time I was barely able to tie my own two shoes (you can ask my parents if you do not believe me!).

      What I just described you would not have been nothing more than a simple anecdote; had I not decided to become an economist (I first wanted grow up to be a mathematician, and later a soccer player). But inflation and devaluation were simply too fascinating (and I was a terrible athlete!), so economics became my passion. Even as a teenager, I was a strong advocate of a Single Global Currency; although, I have to admit, I was initially willing to settle for 3 regional currencies. What was my rationale for this idea? Mainly, I did not want to experience another exchange rate crisis and high inflationary period ever again. It hurt my family; it hurt my friends and neighbors; it hurt my country.

      And here I am. It is 23 years later; and I am 30 years old (almost 31!). Needless to say, I have studied with a lot of attention several currency crises around the world and throughout history: Germany, Austria, Hungary, Argentina, Mexico, Nicaragua, Bolivia, Brazil, Israel, Turkey, Poland, Bulgaria, Indonesia, Thailand, Malaysia, Russia, to name just a few. Thus, Costa Rica was neither the first, nor the last: we are in good company. Some people may claim: “History is linear… we have learned from our past mistakes.” Have we really?

      A well-managed Single Global Currency, among many of its potential benefits, would be a mechanism designed to avoid any further currency crises and high-inflation episodes. The debate for a Single Global Currency has to be done at many levels and it has to involve several areas: academics, politics, public and private sector; anyone can contribute to the discussion. And I hope we all do, because it is from the interchange of ideas, suggestions and even criticisms that the greatest accomplishments have been achieved. We owe it to the beautiful planet we all live in.

 

16 January 2005.  Journal of Economics and Business Announces a Call for Papers for a special issue:  "Macroeconomics in the twenty-first century"

   The CALL notes that such papers might arise from such major events as "the formation of the European Union and adoption of the Euro currency."

    Hopefully, there will be papers submitted to the Journal about the Single Global Currency.

8 January 2005  "A Metric for Assessing Currency Implications of Intra- and Inter-Regional Shocks: Application to Australasia" by Arthur Grimes, University of Victoria, University of Waikato, and Reserve Bank of New Zealand

Paper presented at the joint American Economic Association - American Committee for Asian Economic Studies session ‘The Theory of Optimum Currency Areas Revisited',  ASSA Annual Meeting, Philadelphia, 8 January 2005

Abstract:

We place regional industry structures at centre stage in currency union analysis, decomposing differences between regional and aggregate cycles into "industry cycle" and "industry structure" effects. One Australasian region, ACT, has a material industry structure effect arising from its heavy central government concentration. No other region has a material industry structure effect; their cycles differ from the aggregate cycle due to region-specific shocks. VAR analysis shows the NZ-Australia exchange rate (NZD/AUD) responds positively to innovations in NZ manufacturing and government-related services. A negative Australian agriculture shock (e.g. drought) also induces an NZD/AUD appreciation. No other Australian-sourced shocks impact significantly on the NZD/AUD.

8 January 2005 "THE THEORY OF OPTIMUM CURRENCY AREA REVISITED: LESSONS FROM THE EURO/DOLLAR COMPETITIVE REGIMES by M.Dutta, Rutgers, the State University of New Jersey.

Paper presented at the joint American Economic Association - American Committee for Asian Economic Studies session ‘The Theory of Optimum Currency Areas Revisited',  ASSA Annual Meeting, Philadelphia, 8 January 2005

Perspective:

Floyd Norris (The New York Times January 03, 2005) writes about “a dollar with no muscle”. Jonathan Fuerbringer (The New York Times Saturday November 6 th , 2004) drew our attention when: “The dollar skidded a record low against the euro...(Friday, January 5th)…” “…The dollar fell as much as 0.8 percent during the day and was down 0.7 percent from Thursday in late trading in New York…” “…With the euro now at $ 1.2962, the dollar has fallen 2 percent this year and 36 percent since its

high against the euro in October 2000,” he adds. The dollar continues to “skid” with the euro at $ 1.3483 on January 3, 2005.

     Ranking economists of our academic profession have joined the debate and they argue that euro-dollar exchange rate fluctuations will help correct the imbalance in the current account of USA. Other things being equal, the neo-classical theory of international trade based on one or another form of the theory of comparative advantage will eventually contribute to this desired outcome. However, other things are seldom

equal. One important fact has been ignored. Of the 191 sovereign nation state economies as per the membership list of the United Nations, when one economy is too dominant in

terms of its shares of world output and trade, the market ceases to be competitive. Given the fact that a large number of member economies enjoy marginal shares of world output and trade and that a small number of the 191 economies enjoy a relatively larger share of world output and trade, the world market is tilted against the majority of the member economies. They are price-takers (Linnemann. H , Dutta. M 1962, 1965, 1976 ) as

they have no ability to be competitive in the world market...."

8 January 2005  "Inflation Differentials among the Euro Area Countries: Potential Causes and Consequences.  by Boris Hofmann and Hermann Remsperger  Deutsche Bundesbank Paper presented at the joint American Economic Association - American Committee for Asian

Economic Studies session ‘The Theory of Optimum Currency Areas Revisited'ASSA Annual Meeting, Philadelphia, 8 January 2005

Introduction:

    The Optimum Currency Area (OCA) literature identifies several conditions that must at least in part be met for a currency union to be viable. 1 One of them is sufficient similarity in the

national rates of inflation. This precondition is necessary since in a currency union nominal exchange rates are irrevocably fixed, and therefore external imbalances building up in the

wake of persistent divergences in national inflation rates cannot be corrected by an exchange rate realignment.

    However, since the start of EMU, persistent differentials in national price developments continue to exist in the euro area. The accumulated effect of these differentials is already

reflected in quite significant shifts in real exchange rate indicators of some of the euro area countries. Besides the implications of inflation differentials for external price

competitiveness, some commentators have recently also uttered concern that these inflation differentials may also give rise to self-exciting internal imbalances. Since all countries face

the same short-term nominal interest rate set by the Eurosystem, persistent inflation differentials across euro area countries will give rise to equally persistent short-term real

interest rate differentials. As a result, some experts are of the opinion that the Eurosystem's monetary policy may be overly tight for countries already experiencing low inflation and

excessively loose for countries experiencing high inflation rates.

    As the Eurosystem's mandate is to safeguard price stability in the euro area as a whole, it will not base its monetary policy decisions on inflation developments in single countries and will

take them into consideration only to the extent they influence the aggregate figures for the euro area. Besides, the Eurosystem does not dispose of any instruments to selectively address

inflation developments in single member countries. However, persistent inflation differentials may at one point impair public acceptance of EMU and may eventually put the viability of

monetary union at risk if they do not prove to be self-correcting, especially since the monetary union is not backed by a political union. For this reason, understanding the causes of the

observed inflation differentials and the adjustment mechanisms at work amplifying/limiting their spread is of major importance.

 

2004

November 2004.  "Monetary Simplification Euro/Dollar: Towards a Global Currency"  by Ramon Tamames, Madrid Autonomous University.

Excerpts...

     Because of this, it is a good occasion for the IMF to broach the subject  of a universal currency. That was my proposal in June 2004 to Rodrigo Rato, the newly named Managing Director of the IMF, as part of his possible grand design as the head of the Fund for the five-year period 2004/2009, since he shouldn't be content to keep on acting as the great international fireman, to act as a fire-fighter for great monetary turmoil…

     Thus, the International Monetary Fund should call for a think

tank, to study seriously the possibility, not far off, of a future

global currency, which would return to the organism born in

Bretton Woods in 1944, 60 years ago, its germinal

transcendence....

   A global currency seems to me, on more or less term, inevitable, based on the axiom that a global world needs a global

currency. In the same way that was useful the axiomatic idea of

Maastricht, that a single market needed a single currency.

Apart from the previous remarks, a global currency is fitting to

bring more peaceful prospects to the world economy, avoiding

serious world financial crises, promoting savings and investments

within a framework of stability; facilitating capital movements, and

promoting trade on all fronts, without more competitive devaluations.

    For this and much more, it would be important to have available a common currency, in the course of more and better globalisation of mankind.  To conceive the tools necessary for such a great reform of the IMF, a recent antecedent from Kofi Annan is available: in 2004 he created a think tank for a thorough revision of the United Nations, of extreme necessity, especially keeping in mind the events of the Security Council of the United Nations when discussing a possible second war in Iraq. The aim in mind in my already cited article of June 2004 addressed to the Managing Director of the IMF, is very similar: to form a brain trust , which should seriously study the not far off possibility of a future global currency.

     In the case of my personal proposal, the name that I suggest for the global currency is the C osmos , a word which in ancient Greek means, simultaneously, universe (with its derivations of cosmic ray or cosmogony, etc.) and beauty (the root of the word cosmetics ).

 

Summer 2004.  "A global currency for a global economy"  by Basil Moore in the Journal of Post Keynesian Economics.

Abstract...

     When using national currencies in international trade, both flexible and fixed exchange rate systems pose a number of problems. The most important is a large deflationary bias on the global economy, as deficit countries are forced to try to attain a positive current account balance to protect their exchange rate. The author advances a Post Keynesian policy proposal for a common global currency, where exchange rates vanish and countries no longer have an external balance constraint. In order to move toward a common world currency, two approaches are considered: a top-down approach, consisting of a global central bank (or a small number of competitive regional central banks), which is politically unfeasible, and a bottom-up approach, consisting of blocs of countries that chose to dollarize or euroize. The paper proposes a dollarization/euroization plan for the global economy. This would enable economies to pursue expansionary domestic policies since they would no longer face an external balance constraint.

23 August 2004  "A Single Global Currency? Not Any Time Soon Nor in the Long Run in Which We Are All Dead"  by Nouriel Roubini

After quoting from Martin Wolf's 8 August 2004 Financial Times article in support of a single global currency, Roubini began his response:

"His case in favor of a global currency is a combination of different arguments. First, he is concerned about the U.S. running large current account deficits and accumulating debt. Second, he is concerned about emerging market economies having to borrow in foreign currency (as they suffer of "original sin" or "liability dollarization" as in the celebrated arguments of Hausman and Eichengreen ) and thus being vulnerable to highly disruptive financial crises when capital reversals and sudden stops occur and currencies collapse. Third, he is concerned about the excessive and inefficient accumulation of forex reserves by Asian and other emerging market economies. All these phenomena, he argues, are explained by currency instability that would be eliminated by a single global currency.

These arguments, however, do not make a compelling case for a single global currency. Spending time with Robert Mundell - a great supporter of a global currency - in the Tuscany hills may impair one's better judgement about the benefits of a single global currency. There are many arguments against such single global currency."

 

"The EuroAmerican Single Currency Free Trade Area" by Bryan Taylor, Global Financial Data

      The article presents the case for a common trade area between the U.S. and Europe and a common currency, and concludes,

     "The only condition that is lacking is the political will to make this change. As with the Euro in Europe, making the transition will require strong leadership in both the United States and in Europe to see through the transition to a single currency. At some point in the near future, people will see that the benefits of having a single currency far outweigh the costs, and people will begin to ask if we can afford not to have a single currency. At that point, the single currency will become a political and economic fait accompli, and a world that has almost 200 currencies will be seen as an inefficient anachronism.
If the rallying cry of the twentieth century was to be "Workers of the world, unite!" then the rallying call of the twenty-first century could be 'Currencies of the world, unite!' "

"A Meta-Analysis of the Effect of Common Currencies on International Trade"  by Andrew Rose

    The abstract for this important NBER paper states, "Thirty-four recent studies have investigated the effect of currency union on trade, resulting in 754 point estimates of the effect. This paper is a quantitative attempt to summarize the current state of debate; meta-analysis is used to combine the disparate estimates. The chief findings are that: a) the hypothesis that there is no effect of currency union on trade can be rejected at standard significance levels; b) the combined estimate implies that a bilateral currency union increases trade by between 30% and 90%; and c) the estimates are heterogeneous and not consistently tied to most features of the studies."  (March 2004)

April 2004. Prof. Martha Starr writes American University Working Paper: "One World, One Currency: Exploring the Issues"  She wrote, "It is argued that, if the current pace of economic and financial integration continues, a global money may emerge that is better adapted to internationalization of production and exchange -- although such a change may be a long time in coming."

March 2004.  "Exploring the Concept of a One-world Currency"

by Christopher H. Budd, Center for Associative Economics, Canterbury, England (and presenter at first Annual Single Global Currency Conference, 2004)

Abstract:

This essay explores the prospects for a universal currency based not on economic nationalism or superpowerdom but on global economic partnership. It argues that, although geopolitically challenging, this is the ‘true' logic of modern economic history and that the same logic leads to the concept of inter-country net worth transfers as a means for achieving what previously was the task of the gold standard and pegged exchange rates, namely, economic equilibrium between the various parts of the global economy.

 

2003

December 2003.   "Financial Globalization: Some Conceptual Problems" by Philip Arestis, Levy Economics Institute and Santonu Basu, London South Bank University

Abstract:

"In recent years financial liberalization, although not necessarily able to deliver a higher growth rate or for that matter to bring efficiency in the financial sector (Arestis and Demetriades, 1997), has brought a new twist in the process by introducing a highly politicized term, that of financial globalization. The term financial globalization refers to the process by which financial markets of various countries of the globe are integrated as one. We wish to argue that although financial liberalization is a necessary condition for financial globalization, it is not a sufficient condition for it. The introduction of a worldwide currency managed by a single international monetary authority is the sufficient condition."

September 2003.  "Does the Global Economy need a Global Currency?"  by Herbert Grubel in the Fraser Forum at Simon Fraser University.

The article begins...

With the Canadian dollar rising and falling like a yo-yo in recent months, Canadians should be interested in the discussions among 15 economists that took place in June at Robert Mundell's “palazzo” in Santa Colomba, near Siena, Italy. Mundell was the winner of the Nobel Prize in Economics in 1999. The discussions revolved around the question “Does the global economy need a global currency?”

 

1 February 2003.  "A Currency of One's Own? An Empirical Investigation on Dollarization and Independent Currency Unions"  by Sebastian Edwards

Abstract:

In this paper we analyze whether common currency' countries that is, dollarized and independent currency union countries have outperformed countries that have a currency of their own. The paper is empirical and estimates jointly the probability of being a common currency country and outcome' equations for growth, volatility and inflation. We find that both type of common currency countries have lower inflation than countries with a domestic currency. Dollarized countries have lower growth and higher volatility than countries with a domestic currency. Currency unions, on the other hand, have higher growth and higher volatility than countries with a currency of their own.

 

2002

May 2002.  "Beyond the Tobin Tax: Global Democracy and a Global Currency" by Myron Frankman, McGill University in Annals of the American Academy of Political and Social Science

Abstract:

   The twin phenomena of erratic changes in foreign exchange rates and massive international flows of funds have been important elements in the instability of the world economy since the breakdown of the Bretton Woods system. The much-discussed Tobin Tax proposal on foreign exchange transactions is one response to these disturbances, but it addresses symptoms, not causes. James Tobin recognizes that a world currency with supporting institutions would be preferable. A world of competing currencies imposes a uniform policy template on countries in much the same way that the nineteenth-century gold standard did. The case is made here that a global currency not only offers a solution to the current impasses but also is a necessary component in the shaping of a global democracy, which will restore scope for diversity to the world 's constituent parts.

1 April 2002.  "Why Should Emerging Economies Give Up National Currencies: A Case for 'Institutions Substitution' "

by Enrique Mendoza, Duke University

Abstract:

Financial contagion and Sudden Stops of capital inflows experienced in emerging markets crises may originate in an explosive mix of lack of policy credibility and world capital

market imperfections that afflict emerging economies with national currencies. Hence, this paper argues that abandoning national currencies to adopt a hard currency can significantly

reduce the emerging countries' vulnerability to these crises. The credibility of their financial policies would be greatly enhanced by the implicit subordination to the policy-making institutions of the hard currency issuer. Their access to international capital markets would improve as the same expertise and information that global investors gather already to evaluate the monetary policy of the hard currency issuer would apply to emerging economies. Yet, adopting a hard currency does not eliminate business cycles, rule out all forms of financial crises, or solve severe fiscal problems that plague emerging economies, and it entails giving up seigniorage and potential benefits of conducting independent monetary policy. However, these disadvantages seem dwarfed by the urgent need to enable emerging countries to access global capital markets without exposing them to the risk of recurrent Sudden Stops.

 

March 2002.  "Optimal Currency Areas" by Alberto Alesina, Robert Barro, Silvana Tenreyro, all of Harvard University.

Abstract:

As the number of independent countries increases and their economies become more integrated, we would expect to observe more multi-country currency unions. This paper explores the pros and cons for different countries to adopt as an anchor the dollar, the euro, or the yen. Although there appear to be reasonably well-defined euro and dollar areas, there does not seem to be a yen area. We also address the question of how trade and co-movements of outputs and prices would respond to the formation of a currency union. This response is important because the decision of a country to join a union would depend on how the union affects trade and co-movements.

"Different Monetary Systems: Costs and Benefits to Whom?" by Jose Luis Cordeiro.

    This article, prepared for a conference in 2002 at Fordham University, and also published in the quarterly economic review at the Central University of Venezuela at Review.

     The article reviews the various systems for maintaining the stability of currencies, such as currency boards and pegs, and then comes tantalyzing close to supporting a single global currency by suggesting names for the future currency, such as "worldo" and "mondo".  He comes to his conclusions by focusing on what should be the primary goal of a currency which is to have a stable value.  (originally published in 2002)

"A Review of the works of George Soros, including The Alchemy of Finance"
Patricia A. Alvarez, of the University of Hawaii at Manoa, reviews the works of George Soros, especially his book "The Alchemey of Finance" in which he advocated the establishment of an international central bank and a single global currency.

(From "The History Teacher", Vol 35, No. 2, Feb 2002, Understanding Globalization)

 

January 2002.  "Monetary Unions and the Problem of Sovereignity"  by Robert Mundell, Columbia University, in ANNALS of the American Academy of Political and Social Science, Vol. 579, No. 1, 123-152 (2002)
Abstract:

      Different types of monetary sovereignty are issues in exchange rate agreements monetary unions. Policy sovereignty refers to independence in making exchange rate and monetary policy, legal sovereignty to a country's ability to make its own laws with respect to the unit of contract and medium of exchange. This article traces the history of the concepts and their applications in the history of political philosophy and monetary policies. The first section relates the concepts of legal and policy sovereignty as they emerged in Roman law into the Europe of the Middle Ages and Renaissance. The second part discusses the implication of the sovereignty issue for choice along the road to the European Monetary Union.

 

2001

21 November 2001.  "Does a Currency Union affect Trade?  The Time Series Evidenceby Reuven Glick and Andrew K. Rose

Abstract:

Does leaving a currency union reduce international trade? We answer this question using a large annual panel data set covering 217 countries from 1948 through 1997. During this sample a large number of countries left currency unions; they experienced economically and statistically significant declines in bilateral trade, after accounting for other factors. Assuming symmetry, we estimate that a pair of countries that starts to use a common currency experiences a near doubling

in bilateral trade.

 

"Sustainable Finance: Seeking Global Financial Security"

"Global Innovation
In terms of new ideas for enhancing financial sustainability, at one end of the spectrum there are calls for reform of existing institutions and instruments, while at the other we find advocates of entirely new structures. These suggestions are not necessarily mutually exclusive since new approaches may actually compliment existing ones. Some examples of short and long term proposals for international, corporate and national institutions, are outlined below:
1. New Global Ideas
Long term: Certain institutional proposals exist to further strengthen the social and environmental tiers of sustainability, such as creating a World Development Organisation and World Environment Organisation (Dodds 2000). These ideas raise the question as to whether such institutions would bring any better results than those currently in existence. Existing institutions could be improved through greater coordination of financial aims, removing unnecessary crossover and enhancing their specific areas of jurisdiction, in support of more sustainable use of funds. Regional coordination could also be enhanced along the lines of the Lome Convention between European and ACP states. Regarding new long term instruments, the idea of a single Global Currency has been around for a long time. Prior to the establishment of the Bretton Woods Institutions Keynes had considered such a currency, called a Bancor. It would require an global clearing house to manage a "system of international exchange in which the trading of goods and services, will be the central feature, financial and capital transactions will play their proper auxiliary role of facilitating trade". Suggested examples of global currencies include a Fiat Currency , Commodity-valued Reference Currency and Commodity-Backed Reference Currency . The aims would be similar to that of regional equivalents (such as the Euro) i.e. short-term price stability and long term financial and trade balance. It would require sufficient power to regulate excessive speculation and encourage prudent behaviour (Leitaer 2000).  (by Rosalie Gardiner, August 2001, written for the United Nations in preparation for the Earth 2002 Summit Conference.)

"Problems and Reforms of the International Monetary System" by Dominick Salvatore, Fordham University.  A Paper prepared for the July 17, 2001 meeting of the G8 Research Group.

This 24 page, double-spaced, paper provides an excellent summary of the current system and the various recommendations for change. 

June 2001.  "Fewer Monies, Better Monies"  by Rudi Dornbusch

Abstract:

In the aftermath of emerging market crises from Russia to Asia and Latin America, there is a quest for better monetary arrangements that are more crisis-proof. Fixed rates are out, flexible rates are in with a policy focus on inflation targeting. But there is, of course, the alternative of abolishing exchange rates all together. This paper revisits the issue of dollarization or currency boards to review what arguments in the debate stand up. The case for flexible exchange rates emphasizes the need for a tool to accomplish relative price adjustment. This paper argues that in an intertemporal perspective most shocks require financing in the capital market rather than adjustment. Moreover, countries frequently do not use their flexible rate to play a cyclical role and, as a result, only a pay a premium for the option to depreciate but do not take advantage of the flexibility; on the contrary, they engineer systematic overvaluation in the context of inflation targeting.

May 2001  "One World, One Money - Robert Mundell and Milton Friedman debate the virtues, or not, of fixed exchange rates, or gold or a world currency" in Policy Options

Mundell: My approach is more internationalist than Milton's. I reject as economically wasteful a system of 178 national currencies floating against one another. I would prefer to see fixed exchange rates between the three dominant currency areas and to use a fixed dollar-euro-yen unit as a platform from which to launch, under the auspices of the Board of Governors of the International Monetary Fund, a world currency."

8 January 2001.  "On Why Not a Global Currency"  by Kenneth Rogoff, Harvard University.

No Abstract is available, but the paper begins:

     It appears likely that the number of currencies in the world, having proliferated along with the number of countries over the past fifty years, will decline sharply over the next two decades. The question I plan to pose here is, where, from an economic point of view, should we aim for this process to stop? Should there be a single world currency, as Richard Cooper (1984) boldly envisioned? Should there remain multiple major currencies but with a much stricter arrangement among them for stabilizing exchange rates, as say Ronald McKinnon (1984) or John Williamson (1985) recommended?

    Building on Maurice Obstfeld and Kenneth Rogoff (2000b,d), I will argue here that the status quo arrangement among the dollar, yen and the euro (which I take to be benign neglect) is not far from optimal, not only for now but well into the new century. And it would remain a good system even if political obstacles to achieving greater monetary policy coordination – or even a common world currency -- could be overcome. Again,

this is not a paper on, say, the pros and cons of dollarization for small and medium-sized economies, but rather on arrangements among the core currencies....

The paper concludes:

Currency consolidation seems like a desirable and (at present) likely process. But it is already important, now, to begin thinking about where consolidation should stop. I have argued here that, into the foreseeable future, it would not be desirable to aim for a

single world currency, and that from an economic point of view, it would be preferable to retain at least, say, three to four currencies if not n currencies.

[The question from the Single Global Currency Assn. is: Why stop at 3-4 or n currencies, when each of them is far larger than the entire world economy of only a few years ago?  Why stop at 3-4 or n when the benefits of going from 3-4 to ONE outweigh the benefits of getting from 176 to 3-4?]

 

2000

"Devaluation and Proposed Stabilization of the Euro" is the title of this remarkable paper by Matt Cohen, then a student at Phillips Academy in Andover, Massachusetts, USA.

The paper is actually a review of the euro's development and contains predictions of its future strengthening against the dollar. Also, it notes that the euro is a preview for the single global currency.   He wrote on page 2, "The euro is a steppingstone in the path to a single global currency...", (emphasis added here) and on page 9, "Eventually, for globalization to have achieved its goals, a global currency will be required.  The euro is a step in the direction of a world currency.  While there are certain drawbacks of a common currency, the benefits outweigh them.  All of Europe, and the world, will benefit from decreased transaction costs, increased mobility of goods and resources and increased productivity." (Social Science 410, November 2000)

August 2000.  "Is Iceland an Optimal Currency Area?"  by Willem Buiter

Abstract:

"The paper considers the pros and cons for Iceland adopting the euro as legal tender. The current Icelandic monetary arrangements are contrasted both with a unilateral adoption of

the euro and with a full membership in the EMU. Microeconomic transactions costs savings argue in favour of either form of monetary union. Loss of seignoirage revenues does not seem to be an economic obstacle to either form of euroisation for Iceland. Loss of the lender of last resort is, however, a powerful argument against unilateral monetary union. The optimal currency area arguments (which concern the macroeconomic

stabilization aspects of a permanently fixed exchange rate) are unfavourable to a unilateral monetary union, but the case against a full membership in the EMU is more balanced. The extraneous instability and excess volatility inherent in a marketdetermined exchange rate dominate the shock absorber properties of a flexible exchange rate when financial markets are highly integrated. On balance, the economic arguments

favour a membership in the EMU, but not the unilateral adoption of the euro. Because Iceland is not a member of the EU, the political arguments against any form of monetary union are overwhelming. Without a EU membership, the transfer of national sovereignty to the ECB would lack political legitimacy. The lack of institutions for ensuring the political accountability of the ECB in Iceland means that euroisation of Iceland is unlikely to happen, except as part of Icelandic membership in the EU. Euroisation without a membership in the EU is simply unlikely to survive."

 

1999

November 1999.  "Optimal Currency Areas: Why Does the Exchange Rate Regime Matter?"   by Willem H. Buiter, Cambridge University.

Abstract:

    Microeconomic efficiency and market transparency argue in favour of UK membership in EMU and for Scotland's membership in the UK monetary union and also in EMU.

    UK seigniorage (government revenues from money issuance) would be boosted by EMU membership.  Lender of last resort arrangements would not be substantially affected by UK membership in EMU.

    The UK is too small and too open to be an optimal currency area. The same point applies even more emphatically to Scotland. The ‘one-size-fits-all' , ‘asymmetric shocks' and ‘cyclical divergence' objections to UK membership are based on the misapprehension that independent national monetary policy, and the associated nominal exchange rate flexibility, can be used effectively to offset or even neutralise asymmetric shocks. This ‘fine tuning delusion' is compounded by a failure to understand that, under a high degree of international financial integration, market-determined exchange rates are primarily a source of shocks and instability. Instead, opponents of UK membership in EMU view exchange rate flexibility as an effective buffer for adjusting to asymmetric shocks originating elsewhere. I know of no evidence that supports such an optimistic reading of what exchange rate flexibility can deliver under conditions of very high international financial capital mobility.

    The economic arguments for immediate UK membership in EMU, at an appropriate entry rate, are overwhelming.

Monetary union raises important constitutional and political issues. It involves a further surrender of national sovereignty to a supranational institution, the ECB/ESCB. It is essential that this transfer of national sovereignty be perceived as legitimate by those affected by it. In addition, the citizens of the UK have become accustomed to a high standard of openness and accountability of their central bank since it gained operational independence in 1997. The ECB/ESCB must be held to the same

high standard, and, while there are grounds for optimism, there still is some way to go there.

October 2000.  "North American Monetary Union"

   Herbert Grubel expands upon his 1993 proposal for monetary union with the "amero".  he covers the issue of monetary union and Mundell's "optimum currency area", generally, and then the specifics of monetary union for Canada, Mexico and the United States.

("North American Monetary Union, A New Look at the Theory of Optimum Currency Areas" by Herbert Grubel.  Presented at the conference "honoring the intellectual contributions of Professor Robert Z. Aliber, October 20-21 at the University of Chicago.)

Recommendations for International Monetary Reform, including SGC by Robert Guttmann.
In testimony before the German Bundestag, Professor Robert Guttmann stated

"Both structural flaws of the IMS [International Monetary System] can be resolved by one decisive move, namely instituting a single global currency for all international transactions."

The Future of Money

by Even Downing

"....Beyond smart cards, some see even more dramatic changes in the nature of money over the long term. One British think-tank predicts that by 2020, we'll be using a single global currency, common to all nations.

"That's possible, for sure," says Negroponte. "But the opposite will happen as well-a vast array of digital currencies will evolve, issued by all sorts of entities, not just nation states." Examples include store-based loyalty points or kids' cash as well as tiny closed currencies specific to a town or region....." (Spectrum, from MIT, [Massachusetts Institute of Technology]Winter, 1999)

8 October 1999.  "Monetary Unions in Historical and Comparative Perspective" by Xavier de Vanssay.

Summary

  Monetary Unions can take (and actually have taken) many forms and the model of the European economic and monetary union (EMU) is just one of them. In the past, some monetary unions have been successful (lasting or being folded into an even larger monetary union), while others have come apart.  In this context, the paper presents two examples of past monetary unions:  one successful (the German monetary union), and one that did not last, but was successful while it lasted (the Scandinavian monetary union).  As it turns out, one can draw many interesting historic parallels betweeen past monetary unions and the EMU.

The Search for Global Monetary Order

A visitor's review of the October 1999 Cato Institute Monetary Conference

Summarized comments of Judy Shelton DUXX Institute in Mexico,  "In concept, the problem could be solved in a straightforward manner. The governments of individual nations could agree to establish a global economy. There are logical procedures and historical precedents for doing so.

One way would be to set up a single global currency managed by a global central bank. Not to oversimplify the actual process, but the critical driving points would be to achieve international agreement on the objective, identify the key phases of transition, and then map out a timetable for execution. Europe's move to a single currency shows that political cooperation among national governments is indeed possible; a larger-scale initiative aimed at achieving a single global currency would undoubtedly benefit from Europe's experience and could likely proceed more rapidly. Global monetary union (GMU) would transcend European objectives in imposing political and financial conditions for a new common currency."  (For the formal agenda of the conference, see Agenda, Cato Monetary Conference 1999.)

Sept 1999. "The Case for the Amero - The Economics and Politics of a North American Monetary Union"

   Herbert Grubel reviews and expands upon his 1993 proposal for monetary union with the "amero".  He covers the issue of monetary union and Mundell's "optimum currency area", generally, and then the specifics of monetary union for Canada, Mexico and the United States.

Travel Further on your Buck

by Lee Roth, The College of New Jersey, USA

"....Knowing this, the next logical step would seem to be a single, global currency. The introduction of the euro is a start towards economic consolidation. Although a far cry from one worldwide form of money, the tying together of 11 of Europe's currencies is a significant start. With the health of the world's economies as questionable as it is, this may seem much easier in theory than in practice. However, some experts believe that it is both a possibility and a probability.

David Gardner, co-founder of online financial information site The Motley Fool, believes 'One day, as long as our society is not consumed by alien invasion, airborne virus or nuclear war, there will be one currency and one stock market.'.... " (from an undated website, perhaps 1999, from the College of New Jersey.)


1998

Currency Chaos, from the MAC Observer

by Wes George

" The whole monetary crisis thing is really underrated, probably because no one but George Soros and economic professors, and not all of them, even really understand it. I know I don't.

Here's what I do understand. The high stock values on Wall Street and in the European bourses are based on the hope that the emerging global economy will be very, very good to business. Free trade across formerly closed or tariffed borders means far more efficiency in the economy leading to higher productivity and swelling profits. The problem is every sovereign state issues it's own fiat currency at the whim of their central bankers who hark to the clarion call of politics, nationalism and/or corruption. It's as if the economy of the U.S. were based on fifty different state currencies - some floating, some pegged, some not worth the paper they're printed on. The fact is that the world economy doesn't need more than a handful of currencies to operate.  A single global currency would be the ideal "best of all worlds" situation. This, of course, is not politically possible. Already the economies of many countries are based on the underground exchange of dollars. Take the farce of the Mexican peso as an example. According to the Wall street Journal, "The price of the dollar in pesos has increased by 81,000 percent in the last 22 years; inflation has averaged 37 percent per annum in the same period. The stable peso of the 1960's has lost 99.8 percent of its value." The average interest rate in Mexico is about 47 percent. The scary thing is that the state of the peso is the rule, not the exception, in the developing world."  (November 9, 1998)

22 October 1998. In a note on the web, "uk-policy Help, is anyone out there listening? - 'A Way of Escape' " Diarmid Weir , Phd student the U.K. University of Stirling, wrote:

  "... No, first we must tackle the root cause of the developing world's difficulties, which are currencies and commodities pushed artificially low by the economic power of the industrialised nations. This is an exact parallel with our domestic relationship between the big supermarkets and the farmers.
Various approaches are possible. Indexation to keep import and export prices in the same relation to each other is one. Ultimately there seems little sense in not moving toward a single global currency, in effect if not in name. Despite the illusion of sovereignty given by national currencies with floating or artificially pegged exchange rates, they simply exaggerate pre-existing economic power balances, whether this be in favour of developed over developing countries or George Soros' ‘Quantum Fund' over a moderate-sized country's central banks as demonstrated by the ERM debacle of 1993. "

1997

5 December 1997.  Robert Mundell speaks at a Conference on Optimum Currency Areas in Tel-Aviv with the topic "OPTIMUM CURRENCY AREAS"

As this was post-Maastricht, but pre-1/1/1999, he concluded:

     Let me just conclude by saying that the Maastricht approach is not the only route to monetary union. Once countries have got control of their budget deficits, they will have the option of fixing exchange rates to the euro with very narrow margins, achieving many of the benefits of EMU without the ultimate sacrifice in monetary sovereignty. Indeed, this is the approach countries like the Club Med countries and Greece should follow even if the European Council at its 1998 meeting rejects their application for early admittance to EMU (Mundell and Sadun (1996)). The more countries that join the bloc the greater will be its chance of success. Failure to go forward would be an awesome disappointment to those who see European Monetary Unfication as the best catalyst for a stable economic and political order on the continent.

 

1996

24 May 1996.  "International Taxation: The Trajectory of an Idea from Lorimer to Brandt" By Myron J. Frankman, World Development 24 May 1996, 2000

"What has come to be known as the Tobin Tax on foreign exchange transactions originally appeared in a lecture presented by James Tobin in 1972 and was developed more fully by him in 1978.....Given the recent interest in the Tobin Tax, it is appropriate to remind the reader that he offered it "regretfully" as a second best. The first best solution being "a common currency, common monetary and fiscal policy, and economic integration."

 

1995

Review of Robert Guttmann's book, supporting SGC
In this review of "How credit-money shapes the economy", by Robert Guttmann, James K. Galbraith, notes that Robert Guttman supports the establishment of a single global currency and proposes an intermediate single international credit system.  (Journal of Economic Literature; 33(4), December 1995, pages 1989-1990.)

1984

Fall 1984, "A Monetary System for the Future", Richard Cooper, in Foreign Affairs, Fall 1984, pp. 166-184
     "...I suggest a radical alternative scheme for the next century: the creation of a common currency for all of the industrial democracies, with a common monetary policy and joint Bank of Issue to determine that monetary policy. Individual countries would be free to determine their fiscal policy actions, but those would be constrained by the need to borrow in the international capital market.... Exchange rates can be most credibly fixed if they are eliminated altogether, that is, if international transactions take place with a single currency. But a single currency is possible only if there is in effect a single monetary policy, and a single authority issuing the currency and directing the monetary policy. How can independent states accomplish that? They need to turn over the determination of monetary policy to a supranational body, but one which is responsible collectively to the governments of the independent states.... This one-currency regime is much too radical to envisage in the near future. But it is not too radical to envisage 25 years fro now, and indeed some such scheme, or its functional equivalent, will be necessary to avoid retrogression into greater reliance on barriers to international trade and financial transactions."
[In an email in 2003, he wrote, further, "I cannot sign your letter, since I do not support a global currency.  I cannot think of a way to manage it that would command legitimacy.  My proposal of some years ago, which I have repeated more recently in the August 2000 issue of International Finance, is for a common currency among
the major industrial democracies, i.e. Europe, USA, and Japan.  Australia and Canada would be welcome to join, but I am not sure it would be wise for them to do so, since they are economically more specialized, particularly their exports, than Euroland, USA, and Japan, hence would be subject to different shocks.  Floating rates have served both countries, especially Australia, well in recent years.  But structure changes over time, and a judgement might different when the proposal begins to be taken seriously.]

1961 

Robert Mundell's groundbreaking article,  "Theory of Optimum Currency Areas" published in "The American Economic Review". From this work arose planning for the euro and other common currencies.