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What's Been Said favorably about the Single Global Currency or Global Monetary Union


Business & Finance

The views below are presented in reverse chronological order.

 

Mark Roberti, RFID Journal (Radio Frequency IDentification)

"The Big Picture

We are moving toward a world where business is done in one language, with one currency and with one system to track products.

A few years ago, I was hosting a panel discussion about online marketplaces at an Industry Standard conference. One of the panelists, an electronic commerce expert, said that we would never get to a world in which every company identified a particular part in the same way. I disagreed with him. Today, I disagree with him more than ever.
Let's take a step back and look at the big picture. People can decry globalization all they want, but to facilitate business, we have been evolving since the beginning of humanity toward a world with a common currency and a common language. We no longer trade with animal teeth, bones and shells or even francs, liras and deuschemarks. And the Euro may not be the end of this process. Similarly, one reason people from Austria to Zambia speak English is because we need a common way to communicate to do business."  (Sept. 8, 2003, RFID Journal)

 

John Lipsky, Chief Economist JPMorganChase

Although he advocates moving slowly toward integration, John Lipsky has an ultimate vision more radical than Robert Mundell's. Rather than linking the dollar, the euro and the yen in a three-currency monetary union, he favors bringing the world's economies together in a single currency. "A Global Currency Unit - perhaps something like John Maynard Keynes' original proposal for the post-WWII era, to be created by the International Monetary Fund - isn't going to be considered seriously in the foreseeable future," he admits. "Nonetheless, such an idea could make good sense in a more distant future. If well managed, a single global currency could promote credible long-term price stability, improving the global economy's efficiency and productivity."

Viewpoint: A Dialogue on Global Currency Reform  Thought, a magazine produced by JP MorganChase for clients of JPMorgan Investor Services 4th Quarter 2001

"Uniting as one" by John Costello, in CFO Magazine, Australia

"...... And that leads us, dear reader, to the nub of the current discussion on globalisation. Should we have a common world currency? After all, we've standardised on a single system of weights and measures (apart from the US, which sticks resolutely to miles, inches, gallons and pounds). We're already seeing moves by major stock exchanges to merge on a global scale. So why not a single global currency? They've got a single currency in Europe with the euro, after all. Several Latin American countries have indicated they will abandon their local currency and switch to the US dollar. For us in Australia, a single currency would certainly solve the problem of what to do when you find a New Zealand coin in your loose change. The argument I've heard most recently is that rather than a single world currency, we have several according to groups of major trading nations. This would see North and South America tied to the US dollar. Of course, it would then be simply known as the dollar. The Europeans already have the euro. A related currency to the euro would be the afro, naturally. So where would that leave us? Well, we could tie ourselves to the Japanese yen and rename it the aspac. All that's left is what I refer to as the 'Stan countries' - Pakistan, Uzbekistan, Afghanistan and so on. I guess they could take their pick between the afro and the aspac. But all this produces another problem. Who would administer each currency and, in the end, who would look after the inevitable single world currency? It would be a problem that Drake never saw years ago as we mulled over our muscat. Just for now, if you don't mind, I'll go back to daydreaming of a more efficient and certainly more glamorous rail system. "

CFO Magazine, Australia's web magazine for senior finance staff, 2001.

1 March 2000.  "Coming Soon, A Single World Currency"  by Robin Bloor of Bloor Research.

   The Euro is has become a political minefield. It is the issue that will probably determine who wins the next election and it could conceivably cause a major political realignment. So should we join or not? The advocates point to economic penalties if we stay out. The opponents dispute the claims and argue for preserving national identity and economic control. Both sides bring imaginative and intelligent arguments to the debate, but the debate is probably irrelevant. It assumes a global economic structure that is fast being swept away. Never mind Europe, there will soon be a single world currency, courtesy of the internet.

   In practice, a currency is a measure of value that all participants in an economy accept. It is the measure of "price", and this facilitates all economic activity. When the value of a currency is undermined, another currency quickly steps in to take its place. There are many historical examples of this. Try to imagine a world where the centimeter could vary in length and you quickly begin to see the problem. Now, let us consider the electronic economy. Those of us who are connected to the internet and have credit cards are potential international traders. We can buy internationally just as easily as we can buy from the high street. We do not do this in great numbers yet, but the trend has begun and if the US is anything to go by, it will accelerate very quickly. By the end of 1998 in the US the number of people buying goods over the web was in the millions and increasing by 8 percent per month.

   The rapidly growing band of internet consumers use the US Dollar as their 'metric of value' no matter where they are based. For the many non-US citizens amongst them, the Dollar has become their de facto trading currency. The US metric of value is becoming an international metric of value for mundane items such as toys, books, CDs and many other items, as it already is for internationally traded commodities such as oil.

      Now, national economic laws do not apply to multi-national organisations, because they can choose where to pay tax, employ staff and they can also choose the currency that they prefer. Naturally, they take financial advantage of their international status. They are courted by governments and they are regularly offered generous investment grants in the hope that they will 'invest' in one particular national economy rather than another. The internet opens up the floodgates on this. Suddenly any organisation can become a multi-national at very little expense, and can have many of the economic freedoms this brings. Small businesses will be able to trade in any currency they please and so will individuals.

    It is possible now. Until now a national currency was imposed upon us and when, for example, the inflation rate was very high, there was nothing most of us could do about this, but accept the debasement of the currency. Now there is. Governments are being further disempowered in their ability to defend a currency.

   Multinational organisations rapidly abandon a currency when its value is threatened and in the future so will small businesses and those citizens that can. Economic self-interest is a force to be reckoned with and it will undermine any attempts to defend a national currency. Once the internet matures, the only way to enforce a national currency will be via exchange controls, but any suggestion of this will immediately cause a highly destructive flight of investment capital. No modern democratic government would dare to adopt such a policy.

   The electronic economy will gradually absorbs the physical economy and it will happen much faster than most people expect. Although the electronic economy was only totalled about $30 billion in 1998, its growth is phenomenal. Conservative estimates suggest a size of $200 billion by the end of 2000 and while others suggest $1 trillion by then. Its growth is bewildering. By the end of 1998 more then 20 percent of all trading in stocks and shares on US markets was happening over the web. In 1998, this figure was growing at 1 percent per month. The internet has adopted the Dollar as a trading currency by fiat and if it is to be displaced then the only other credible candidate is the Euro. Perhaps a sensible idea would be to move towards merging these two currencies. If governments do not come together and agree on what the world currency should be then ultimately the netizens of the world will vote for one, and they will vote with their electronic purses and credit cards....

3 April 2000.  "GeoObserver: Europeans Link Up - Currency Pegs Proliferate, Presaging a Bretton Woods II" By William P. Kucewicz at www.geoinvestor.com

Excerpts....

    Global monetary reform is long overdue. Ever since the collapse of the Bretton Woods accord in the early 1970s, the world has had to cope with an undisciplined floating exchange-rate system, prone to ruinous bouts of inflation and startling devaluations...

    A Bretton Woods II would ensure strong and sustained 21st century global economic growth. By eliminating currency risks and lowering inflation expectations worldwide, a global monetary union, of sorts, would facilitate increased financial capital flows. The combination of currency and price stability would indeed put the global economy on the road to a truly remarkable century....

Fall 2000

The McKinsey Quarterly, "The end of monetary sovereignty"

As markets integrate and globalize, national currencies should become fewer and stronger.
by DIANA FARRELL AND SUSAN LUND

   " Traditional economic symbols of national sovereignty are going the way of the dinosaur. Around the world, national airlines, telephone companies, banks, and other government-owned institutions, once bulwarks and extensions of the nation itself, are being privatized and placed under market control. In the aftermath of the financial crises of the 1990s, many of them sparked by drastic currency depreciations, it is time for policy makers to narrow sovereignty's scope still further by treating currencies as what they are - simple mediums of exchange. While policy makers tinker with exchange rate regimes, companies and investors around the world are quietly choosing to operate in a single standard currency: the US dollar. Like it or not, the same economic considerations that impelled 11 European nations to replace their national currencies with the euro are turning the dollar into the de facto global currency. Why? Because the United States has adapted to the new economic era of global markets by developing a financial market infrastructure that meets the needs of investors, issuers, and intermediaries.

As the dollar comes to predominate, emerging markets that maintain illiquid national currencies incur a significantly higher cost of capital and stunt the development of their financial markets. And while much ink has been spilled about the benefits of an independent monetary policy, the record of many central banks in emerging markets has been one of hyperinflation, overvaluation, and capital flight.

We are not, however, arguing for the hegemony of the dollar. Instead, we look forward to competition among currencies. Countries should either adopt the most attractive leading currency or compete to create one, a process that would strengthen all contenders and ensure the emergence of the best global medium of exchange. Even in the best of circumstances, it will take a decade or more for one or a few truly global currencies to appear, so instead of flinching from the fierce political opposition that is bound to arise, legislators, regulators, and central bankers should begin moving in that direction today.

GLOBAL MARKETS ARE ADOPTING A SINGLE CURRENCY

Around the world, product and capital markets are becoming increasingly integrated. Governments are opening their borders to foreign goods and capital while technology is revolutionizing communication, permitting companies to operate globally. To facilitate transactions and reduce costs, market participants are adopting a common medium of exchange, the US dollar.

For most of the time since the end of World War II, the US dollar has been the world's dominant currency. At the start of the 1970s, when it was still the benchmark currency of the Bretton Woods system, the US dollar accounted for almost 80 percent of central-bank reserves around the world. After the collapse of that system a little later in the decade, other currencies, no longer pegged to the dollar, could compete for international standing. Yet they failed to achieve it. On the eve of the euro's creation, in 1997, the dollar accounted for only 60 percent of central-bank reserves, but there was no corresponding increase in holdings of the deutsche mark or yen, which remained at 12 and 5 percent, respectively.

Despite the rapid growth of equity and bond markets, almost half of equities and bonds around the world are denominated in dollars (Exhibit 1). Savers have accumulated nearly $30 trillion in dollar-denominated bonds, equities, and currency deposits?the world's largest such pool. By contrast, 9 percent of equities and 16 percent of bonds are denominated in yen, while euro-area currencies account for 15 percent of equities and 24 percent of bonds. The adoption of the euro has caused companies within the European monetary zone to issue far more equities and bonds than they used to, but the currency has yet to attract many foreign issuers.

The dollar's predominance can't be explained by the size of the US economy, which, though the world's largest, accounts for less than 30 percent of the global gross domestic product. Instead, it reflects the world's marked preference for dollar-based financial instruments. Take international bank lending. US banks extend only 10 percent of foreign-bank loans, yet 45 percent of the value of foreign-bank loans is denominated in dollars. In most emerging markets, the proportion is even higher. In Thailand, for example, almost all foreign loans on the eve of the 1997 crisis were denominated in dollars, even though fewer than 10 percent of them came from US banks.

Moreover, the dollar's status in global financial transactions is underscored by its role in foreign-exchange trading: it is involved in nine out of ten foreign-exchange transactions and accounts for most of the trading against every other currency.

Two-thirds of all deutsche mark trades, for instance, are with the US dollar. In the case of less liquid currencies, the proportion rises; almost 90 percent of trading in the Singapore dollar is with the US dollar. The concentration of all trading in a single currency pools liquidity and reduces transaction costs. If every currency were to trade with every other

GLOBAL MARKETS ARE ADOPTING A SINGLE CURRENCY

Around the world, product and capital markets are becoming increasingly integrated. Governments are opening their borders to foreign goods and capital while technology is revolutionizing communication, permitting companies to operate globally. To facilitate transactions and reduce costs, market participants are adopting a common medium of exchange, the US dollar.

For most of the time since the end of World War II, the US dollar has been the world's dominant currency. At the start of the 1970s, when it was still the benchmark currency of the Bretton Woods system, the US dollar accounted for almost 80 percent of central-bank reserves around the world. After the collapse of that system a little later in the decade, other currencies, no longer pegged to the dollar, could compete for international standing. Yet they failed to achieve it. On the eve of the euro's creation, in 1997, the dollar accounted for only 60 percent of central-bank reserves, but there was no corresponding increase in holdings of the deutsche mark or yen, which remained at 12 and 5 percent, respectively.

Despite the rapid growth of equity and bond markets, almost half of equities and bonds around the world are denominated in dollars (Exhibit 1). Savers have accumulated nearly $30 trillion in dollar-denominated bonds, equities, and currency deposits?the world's largest such pool. By contrast, 9 percent of equities and 16 percent of bonds are denominated in yen, while euro-area currencies account for 15 percent of equities and 24 percent of bonds. The adoption of the euro has caused companies within the European monetary zone to issue far more equities and bonds than they used to, but the currency has yet to attract many foreign issuers.

The dollar's predominance can't be explained by the size of the US economy, which, though the world's largest, accounts for less than 30 percent of the global gross domestic product. Instead, it reflects the world's marked preference for dollar-based financial instruments. Take international bank lending. US banks extend only 10 percent of foreign-bank loans, yet 45 percent of the value of foreign-bank loans is denominated in dollars. In most emerging markets, the proportion is even higher. In Thailand, for example, almost all foreign loans on the eve of the 1997 crisis were denominated in dollars, even though fewer than 10 percent of them came from US banks.

Moreover, the dollar's status in global financial transactions is underscored by its role in foreign-exchange trading: it is involved in nine out of ten foreign-exchange transactions and accounts for most of the trading against every other currency.

Two-thirds of all deutsche mark trades, for instance, are with the US dollar. In the case of less liquid currencies, the proportion rises; almost 90 percent of trading in the Singapore dollar is with the US dollar. The concentration of all trading in a single currency pools liquidity and reduces transaction costs. If every currency were to trade with every other currency, trading volumes in any two of them would be very small indeed.

And the dollar is becoming even more important as increasing amounts of financial activity take place in international rather than purely domestic markets. Twenty years ago, capital was funneled from savers to borrowers by means of bank loans, and capital markets were mainly national affairs. Today, capital markets are supplanting banks as the primary intermediaries, although the pace of change varies from country to country. In the United States, which is furthest along in this transition, bonds and equities represent nearly three-quarters of the total stock of financial assets, up from 60 percent in 1990. At the same time, capital markets around the world have been opened to foreign participation, and companies increasingly seek international financing. These changes have raised the demand for dollars. The nominal value of dollar-denominated bonds issued outside the United States grew from $402.1 billion in 1986 to $2.4 trillion in 1999?an annual growth rate of 14.9 percent.

In global product markets, too, the dollar is king. Prices of most commodities are quoted in dollars, and dollars are used to pay for almost half of all imports and exports, even though the United States is involved in no more than 29 percent of global trade transactions (Exhibit 3). Global companies thus find it in their interest to dollarize their operations. The Mexican conglomerate Grupo IMSA is a good example. Since the advent of the North American Free Trade Agreement (NAFTA), in 1994, the proportion of Grupo IMSA?s products sold in dollars has grown to 90 percent. A company can eliminate currency risk from its balance sheet by paying dollars for inputs as well. As a result, Grupo IMSA pays its top executives and a growing proportion of its raw-material suppliers in dollars. To facilitate this trend, many Mexican executives now favor making the dollar a second legal currency.

In addition, the dollar is the foreign currency most widely held by private citizens, denominating almost 80 percent of foreign-currency deposits around the world. Dollar deposits account for more than one-third of total deposits in countries as diverse as Argentina, Cambodia, Peru, and Turkey. Because banks tend to lend in the same currency as their deposits, dollar-denominated loans also abound in these countries.

Throughout the world, US dollars and the local currency are often used interchangeably for routine transactions in real estate, for supplier and professional contracts, and for measurements of inventory. As a result, in countries such as Bolivia, Nicaragua, Peru, and Uruguay, almost as much value is circulating in dollars as in local currency. Russia has an estimated $44 billion in US currency, or almost 2.5 times the value of rubles in circulation. Indeed, roughly 60 percent of all US dollars in circulation are now held outside the United States, according to the US Federal Reserve Board. As almost three-quarters of new dollar notes end up abroad, this proportion can only grow.

Why the dollar?

Undoubtedly, the political stability and military might of the United States contribute to the strength of the dollar, but the main reason for its leading role is the world-class financial infrastructure that supports it. The Federal Reserve Board has held inflation in check since the early 1980s, providing a stable monetary base, while the US Securities and Exchange Commission rigorously governs US financial markets, promoting fair operation and the protection of investors. US accounting standards provide the world's highest level of transparency; the US legal system gives creditors and shareholders extensive rights; and the country harbors the world's strongest financial skills as well as most innovation in financial products.

Because a currency becomes more desirable the more people use it, the dollar has become almost beyond challenge. For the same reason, financiers choose the dollar for their innovations, such as the securitization of assets - further widening the distance between it and all other currencies.

What about the euro? What about the yen?

While the euro could eventually rival the dollar, it now lacks the dollar's credibility and infrastructure. The euro is a new and only partially tested currency. The European Central Bank has too short a track record, and its decision making is hampered by political and economic contention.

Although European financial markets are developing rapidly, they are still far behind those in the United States. US companies and government agencies have issued bonds and equities amounting to 278 percent of GDP, against 139 percent for Germany and France and a European average of 183 percent, despite similar per capita income levels (Exhibit 4).

Europe's less investor-friendly market infrastructure explains almost all of the gap. Capital market regulation there is not as vigilant, and legal protection for creditors and minority shareholders is weak. Furthermore, different sets of national regulations still govern financial markets in the euro area, thus preventing their true integration into a single market, while accounting and reporting requirements make it harder to assess the true condition of euro-area companies. All of these factors prevent the euro from challenging the dollar, at least for the time being.

The yen, for its part, suffers from all of the euro?s liabilities and more. High levels of share cross-holdings and a tradition of centralized economic planning - among other factors culminating in Japan's present woes - mean that few non-Japanese companies or investors participate in the Tokyo market. The yen isn't widely used to denominate transactions even in Asia.

ILLIQUID NATIONAL CURRENCIES ARE COSTLY

Global competition makes maintaining an illiquid national currency more and more costly. For one thing, it raises borrowers' cost of capital. A Thai government ten-year bond denominated in baht, for example, traded for 1,218 basis points over US Treasuries in January 1999. At the same time, a Eurodollar bond issued by the Thai government traded for just 288 basis points over US Treasuries. While part of the difference reflects Thai inflation (8.1 percent in 1998), fully 120 basis points of it can be attributed to the risk that the baht will decline in value. This is a huge penalty for Thai companies to pay in a competitive world. Companies in other emerging markets face a similarly bloated cost of capital.

Argentina, by contrast, has sharply reduced its cost of capital by adopting a currency board that irrevocably fixes the value of its currency to the US dollar. Interest rates on domestic loans fell to 19 percent, from 113 percent, within a year of the board's adoption in 1991, while investment soared by more than 35 percent during the years from 1993 to 1998. Today, Argentina could lower its cost of capital still further if it adopted the US dollar officially - a move the country has seriously considered. Eliminating the 10 percent interest rate differential between peso and dollar loans would add an estimated two percentage points to the country's rate of growth.

The second main problem with an illiquid national currency is that it hinders the development of domestic financial markets. It is no accident that Panama, which uses the US dollar, is the only Latin American country with 30-year fixed-rate mortgages. In other emerging markets, borrowers seeking long-term funding are forced to borrow abroad in a foreign currency that might have appreciated by the time it must be repaid or to obtain loans with short maturities and risk having to replace them at prohibitive cost. The hazards associated with raising long-term capital have pushed the largest and most sophisticated companies in emerging markets to list shares in New York and to raise debt in the Eurodollar market. Smaller, purely local companies cannot do that, further burdening the domestic financial system.

A lack of long-term borrowing options in most of the world's currencies is a serious threat to financial stability. Consider again the case of Thailand. Before the 1997 crisis, its companies, banks, and government borrowed almost $75 billion abroad, chiefly in US dollars. Most of this debt was in short-term maturities and unhedged. When the baht lost 40 percent of its value in 1997, the cost of foreign-debt payments rocketed, and many borrowers went bankrupt. Foreign lenders to Thai banks pulled their loans, creating a liquidity crunch. Companies that had used short-term baht loans to finance long-term investments could not roll them over as expected, and many were pushed into insolvency.

The trade-off

What does a country give up when it abandons its currency? Aside from a traditional symbol of sovereignty, the main cost is the loss of an independent monetary policy and of a flexible exchange rate. Brazil and other Latin American countries devalued their currencies in the wake of the Asian and Russian crises in 1998, but Argentina couldn't do so, leaving it with higher interest rates and more expensive exports than those of its neighbors as well as a nasty recession. The relatively high cost of doing business there caused a host of multinationals - from Royal Philips Electronics to Goodyear Tire & Rubber - to shift their production from Argentina to Brazil, taking jobs with them. To make matters worse, the rise in US interest rates has translated into higher rates in Argentina, damping consumer demand.

Despite the pain, Argentina has decided to stand by its currency board because the country values the reduced cost of capital, the price stability, the investor confidence, and the stronger domestic financial system that currency stability has brought. All of these measures have also contributed to economic growth.

A grand illusion

In truth, "monetary-policy independence" is more illusory than real for most emerging-market countries. In a world of growing trade and capital flows, most governments have ceded control of their interest rates and exchange rates to the millions of participants in financial markets. This is particularly true of developing countries that depend on foreign capital. For them, foreign investors, not domestic interests, increasingly dictate interest rate policy as well as exchange rates. After the Russian crisis began in 1998, for example, nervous investors stopped investing in emerging markets. One currency affected, the Mexican peso, depreciated by more than 10 percent. The Mexican government was forced to raise interest rates substantially to reassure investors and thus stabilize the exchange rate.

While flexible exchange rates can absorb an economic shock, it is significant that most emerging markets have nonetheless decided to peg their currencies to a stronger one, usually the dollar. They have done so to promote foreign investment, to lower interest rates, and to encourage savings to stay within the country. These governments have concluded, rightly, that in today's world, exchange rate adjustments are as likely to cause or exacerbate a shock as to absorb it. Sharp changes in the exchange rate hurt exporters and importers alike, as well as anybody who has borrowed abroad. If these constituents are economically important, exchange rate volatility can leave the economy as a whole in tatters. Letting the exchange rate float in an emerging market has been likened to steering a rowboat in choppy seas: rowers may be free to go where they please, but this doesn't help much.

Indeed, the experience of Latin American countries with floating exchange rates has been disappointing. Ricardo Hausmann, chief economist of the Inter-American Development Bank, has summarized their experience. Countries with floating rates, he found, pay higher average real interest rates: 9 percent, against 5 percent for countries with fixed rates. Interest rates in countries with floating exchange rates are also more sensitive to movements of foreign interest rates, making those countries less independent monetarily, not more. When the cost of foreign borrowing increases by 1 percent, for example, interest rates rise by 1.4 percent in Argentina but by 5.9 percent in Mexico. Finally, floating rates tend to encourage workers, who want to be protected from currency fluctuations, to press for wages indexed to the inflation rate. This makes currency devaluations inflationary for the economy as a whole and drives up labor costs.

The other economic benefits of a national currency are neither irreplaceable nor compelling. Take seignorage, the profit that a central bank earns from printing money or, put another way, the difference between the cost of putting money into circulation and the cost of the goods it will buy. In the case of the dollar, the difference is about 97 cents. Since currency pays no interest, the Federal Reserve in effect makes interest-free loans to the federal government. But it isn't inconceivable that a central bank would share seignorage with the countries that formally adopted its currency. As for the central banks' role as "lender of last resort" none of the central banks involved in the crises of the 1990s managed to prevent them. Besides, there are other ways of providing for the lender-of-last-resort function: Argentina, for example, has a $6.7 billion emergency fund.

In light of these facts, it is not surprising that many academics, policy makers, and market participants now agree that dollarization - or euroization - would make sense for many countries. The burden of proof should now shift to those arguing that a national currency confers actual benefits on emerging markets.

THE END OF NATIONAL CURRENCIES

Participants in the globalizing world economy have been steadily adopting one currency, the US dollar, to reduce transaction costs and facilitate exchange. Although it isn't clear whether a single global currency is necessary or optimal, the economic case for moving to a world of fewer, stronger currencies is clear. With more than 175 currencies circulating today, however, completing this transition would take many years.

But even if policy makers do nothing, market participants will drive the informal adoption of the most adaptive currency, probably the US dollar. How would this come about? Consider again Grupo IMSA, the Mexican conglomerate that has begun to pay out its dollar revenues. Suppose that it arranged to pay all of its local suppliers in dollars and that these suppliers then arranged to pay their suppliers with dollars. Whether the government acted or not, a large portion of the economy could end up doing business in dollars instead of pesos.

Unfortunately, the drawbacks of maintaining an illiquid national currency - a higher cost of capital and a less stable and developed domestic financial system - would continue. For this reason, emerging-market countries should take control of their currencies and link those currencies irrevocably to a leading one by adopting either a currency board or the major currency outright, unilaterally or by treaty. The mechanics for doing so are surprisingly simple. Indeed, the cost of replacing one currency with another could be paid with reserves or with loans obtained from international markets. Argentina, for example, would need about $15 billion to replace the peso with the dollar.

At the same time, to provide a viable competitor to the dollar, policy makers in Europe, Japan, and other industrial areas should enhance the desirability of their own currencies. First of all, that means pursuing stable monetary policies. Policy makers should also establish credible and powerful supervisory bodies that ensure the protection of investors and the transparently fair operation of markets. In addition, they should lift restrictions inhibiting innovation and the deepening of markets, embrace standard financial reporting and accounting practices, and recognize that manipulating a currency to achieve the monetary-policy goals of their own country or union is at odds with establishing that currency as a pure medium of exchange.

Yet not every country will want its currency to become an international medium of exchange. Global status carries risks as well as benefits. The benefits include greater liquidity, a lower cost of capital, the elimination of currency risk, higher returns for domestic savers, and seignorage fees for the national government. The potential costs include loss of trade competitiveness because of demand for the currency, greater exposure to international upheavals, and conflicting objectives of the central bank. US Federal Reserve Chairman Alan Greenspan must conduct monetary policy on the basis of US national interests, but his actions have a powerful impact on global markets. As the world's sole remaining central banker, he would have to perform an even more delicate balancing act. Offsetting these risks and benefits for the good of market participants would thus become part of the policy makers' agenda.

The economic case for moving toward a global currency is clear. As markets integrate, the advantages of using a common currency will only increase. Whatever the anxieties over the loss of sovereignty and nationhood, policy makers should encourage public debate on the merits of moving toward fewer and stronger global currencies.

"The end of monetary sovereignty" (The McKinsey Quarterly, 2000 Number 4, pp. 56-67).

27 April 1999.  In the BBC article "The costs of Kosovo" which considered the drop in the value of the euro relative to the U.S. Dollar to about $1.06.....

Excerpts...

  The conflict over Kosovo is costing NATO countries billions of euros, pounds and dollars and as Rodney Smith points out, there is another victim of the conflict besides the casualties on the battlefield and the streams of refugees: Europe's single currency, the euro, is suffering....

   Christopher Johnson, former Lloyds Bank economist and UK adviser to the European business group, the Association for the Monetary Union of Europe, believes the problem is the dollar and not the euro....

   But then, Mr Johnson can't wait for the euro to come down to parity with the dollar.

   At that level, he says, tongue in cheek, with roughly three quarters of world money all at the same relative rate, the case for global monetary union will have been made.

 

George Soros, in his book, The Alchemy of Finance, 1987, 1994

"In my opinion, there are three major problem areas that require systematic reform: exchange rates, commodity pricing with special emphasis on oil, and international debt.... There is a fourth major problem area that is not even recognized as such: international capital markets...." (p. 326)

"In the following pages I shall discuss the major problem areas separately, but the solution I shall suggest will link them together. It involves the creation of an international central bank.... We have the beginnings of international central banking institutions: the Bank for International Settlement was organized in 1930 in response to the German debt problem; the IMF and the World Bank were founded in 1944 at Bretton Woods. The next step ought to involve an enlargement of their functions or the establishment of a new institution. ..." (p. 327)

"Exchange rate misalignments have become a major source of disruption for the world economy.... The question is: what can be done about it?...Or most daring of all, we could establish an international currency". (p. 328)

"The question is whether our government has the foresight, and our people the will, to accept the discipline that an international currency would impose." (p. 339)

"We cannot have a smoothly functioning international economy without a stable international currency." (p. 358)

"We desperately need an international currency system that is not based on the dollar...The ideal solution would be a genuine international currency, issued and controlled by a genuine international bank.... The idea of an international currency and an international bank has few supporters...." (p. 359) The Alchemy of Finance by George Soros, John Wiley & Sons, 1987,1994.

Konosuke Matsushita

May, 1978 "Needed: A Common World Currency." by Konosuke Matsushita, founder of the international electric and home appliance industry, Matsushita Electric.  In PHP Magazine, Tokyo.

    The hope that Mr. Matsushita expresses is one that has been voiced by reformers for more than a century. His arguments for it are persuasive. He refers to the wild fluctuations in international exchange rates in the last few years. He points out that at the beginning of 1977 it took 290 yen to buy a dollar, but by the end of the year only 240. He reminds his readers that in December 1971 The Group of Ten countries met in Washington to set up a new international currency system, known as the "Smithsonian" agreement, hailed at the time as "the most important monetary agreement in history" - and that it broke down in a year or so.

     After that the world entered a "floating currency" era. But this means that every day the exchange rate of every national currency fluctuates in terms of every other. It means that no one can foresee what any given currency will be worth in terms of any other a year from now, or even tomorrow. And so it means that every man engaged in import or export trade, or in any international business whatever, is forced to some extent to become a gambler. Deploring all this, Mr. Matsushita concludes:

     We need to integrate the wide variety of currencies we have now. In other words, I suggest we agree on the use of one currency that will be common in all the countries of the world.... I am fully aware of the numerous problems that would be involved, such as national pride, differences in economic level and so on. However, if we want to continue our community life on this planet, we're going to have to integrate our currencies at the earliest possible date....

I suggest the United Nations or the International Monetary Fund take up the problem, seek to overcome the difficulties which lie in the way by eliciting the cooperation, effort and wisdom of every country, and therefore achieve an integration of the world's currencies for the peace, happiness and prosperity of the world.

[from an article, critical of a single global currency, by Henry Hazlitt, online at "One Currency For The World?" where it appeared with permission from The Freeman, a publication of the Foundation for Economic Education, Inc., August 1978, Vol. 28, No. 8.]