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What's Been Said Against the SGC


The concerns about a single global currency can be categorized into two groups (see "Economists' Ratings System"), those regarding the Disutility and those regarding the Infeasibility of the single global currency.

The comments below are those which have been published elsewhere or those sent to us directly by email.

Through the publication of these concerns, together with our rebuttals, we hope to further a balanced discussion of the issues surrounding the implementation of a single global currency.

Disutility of the single global currency.

      The arguments against the utility of a single global currency are

1.  Interest rates.  Countries need to retain the ability to control their interest rates in order to assist the national economy when required.

2.  Devaluation/Revaluation. Countries need to retain the ability change the value of their currency.  In practice, this means the ability to devalue in order to boost exports.

 

Comment 1.  "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."

by Kenneth Rogoff in, "On Why Not a Global Currency", American Economic Review, Vol 91(2) pp. 1243-247. 

      Professor Rogoff has returned to Harvard after serving as the Chief Economist for the International Monetary Fund.

Rebuttal 1 by SGCA  If Professor Rogoff sees utility for the people within each of three or four or n currencies then there is surely utility for everyone in any large single currency.  If, for example, we had a three currency world today, there would be approximately 2.2 billion people in each of the currency areas.  That's more people than the entire population of the world in 1940.   Thus, a single global currency could have supported all the people of the world in 1940.   Why not all the people of the world in 2005?  Is there a qualitative difference between the economics for 2.2 billion people and 6.6 billion? 

      It is hard to see a reason for efficiencies which justify consolidating currencies from 200 to 150 to 100 to 50 to 40 to 30 to 20 to 10 to 5 and then stopping at three or four or some small n.   Whatever merit can be found in the competition among currencies, it cannot possibly justify the huge transaction and currency risk costs of having more than one currency.   If the world can progress to such a small number of currencies, why stop at three, four or n?  [Incidentally, Professor Rogoff has written to the Single Global Currency Association, "Congratulations on your ambitious enterprise."]

Infeasibility of the single global currency.

      The arguments that a single global currency is not politically feasible are:

1.  Sovereignty Theory of money.   A country's money is an important symbol of nationalism. 

2.  Monetary Union requires economic union.  Monetary union for Europe may be feasible, but for the rest of the world, such political and economic unity is impossible.

Comment 1.

"Unfortunately, the assumption that the optimal currency area is intermediate in size between a large country and the world is not based on any real evidence. We actually have no particular reason to suppose that Europe is the right size for a monetary union. At one extreme one could claim that the whole world constitutes the optimal currency area. This is a fairly popular position at the moment, under the influence of global monetarists like McKinnon, and it is also a safe position, since it is not going to happen." Paul Krugman in his book, Currencies and Crises, MIT Press, 1992 pp 192-193. (Referring to Stanford Economist, Ron McKinnon, and referring to the term "optimal currency area" as coined by Nobel Prize Winner Robert Mundell in his 1961 Article in the Economic Review.)

Rebuttal by SGCA 1. 

Mr. Krugman wrote this book in 1992, before the 1999, 2002 adoption of the euro.  It's unclear whether Mr. Krugman, now a columnist for the New York Times, maintains his position that "it is not going to happen".   The Single Global Currency Association has written to Mr. Krugman to ask him to revisit the issues of the utility and feasibility of the single global currency.

Comments 2.

The World Economic Forum held a panel at its annual meeting on January 26, 2001.  summary of the panelists' comments is posted on the web, and appears below:

Global Currency: A Global Pipe Dream
As attractive as the idea may sound in the wake of the financial turmoil of recent years, a single global currency is not a viable alternative to the world's existing mix of fixed and floating exchange rates. This, at least, was the universal opinion of the economists and central bankers who assembled for this discussion over lunch. However, more diverse views emerged among panellists regarding the acceptable conditions for a regional currency union, and over the question of what national exchange rate regime is most likely to safeguard monetary stability and economic growth.

Moderator Jeffrey A. Frankel, Professor at the John F. Kennedy School of Government at Harvard University, opened the discussion by noting that economists have been debating what constitutes an ideal currency area since the issue was first raised more than 40 years ago. While it is generally accepted that some geographic jurisdictions--such as a Swiss canton--are too small to support a viable currency, Frankel noted that there is far less consensus over how large a currency union is feasible. Is it a country, a continent or the world?

Martin Feldstein, President and Chief Executive Officer of the National Bureau of Economic Research, and a top economic adviser to former US President Ronald Reagan, said that one of those three possibilities--the world--can be ruled out. "There is nothing in economic history or historical experience that tells us a single currency is necessary or desirable," Feldstein said. Those who believe a global currency would have prevented financial upheavals such as the 1997-98 Asian crisis are ignoring the role that other factors, such as inadequate banking regulation, played in generating that episode, he said.

Jacob A. Frankel, Chairman of the Sovereign Advisory Group and Global Financial Institutions Group of Merrill Lynch & Company, United Kingdom and a former Governor of the Bank of Israel, said the wording of the session's title: "Does the Global Economy Need a Global Currency?" should be switched. The real question, he said, is whether a single currency requires a fully integrated global economy. He answered in the affirmative, arguing that the success of the United States as a single currency region can be credited to the fact that the USA has a fully integrated market for goods and services and a single federal fiscal policy. Until the world as a whole can boast of such institutions, Frankel suggested, the idea of a global currency will remain a pipe dream.

The experience of creating Europe's common currency, the euro, highlights the difficulties inherent in trying to create a currency union, said Otmar Issing, Chief Economist and a Member of the Executive Board of the European Central Bank. He asked participants to imagine the effects if a hypothetical global central bank had been setting world monetary policy in recent years. A policy appropriate for Japan would have resulted in runaway inflation in the United States, Issing suggested, while a policy appropriate for the United States would have crushed Japan's fragile economy.  Although European Monetary Union suggests an optimal currency region can be created over time, "to think it can happen for the world as a whole in the foreseeable future is unjustified," he concluded.

Haruhiko Kuroda, Vice-Minister for International Affairs in the Japanese Finance Ministry, agreed that a single world currency is implausible, but speculated that certain world regions, such as Latin America or South-East Asia, might ultimately benefit from the creation of a more stable monetary arrangement, perhaps including currency union.

Robert A. Mundell, Professor of Economics at Columbia University, suggested an even more ambitious step: fixing the exchange rates of the world's three main currencies--the US dollar, the euro and the Japanese yen--against each other. This would provide a needed anchor against exchange rate volatility, while still giving smaller countries flexibility to float their currencies against the Big Three. For such a system to work, however, two of the three currency leaders would, in essence, have to forsake an independent monetary policy, converting their existing central banks into currency boards--a politically controversial step.

Rebuttal by SGCA 2.

Each of the panelists seem be saying why the single global currency cannot be implemented NOW.  Only Prof. Mundell seemed to acknowledge that the single global currency would be useful for the world and that the world should start planning now.  The route suggested by Prof. Mundell, of linking two or more of the main currencies, is one possible route.  See Routes to the SGC at this website.

 

Comment 3.

In an article (draft) prepared for the May, 2003,  meeting of the International Monetary Convention, Robert Skidelsky dismissed the single global currency as in a parenthetic phrase, "(pending the utopian arrival of a single global currency)".  See "Exchange Rate System for 'Mature' Economies in a Global Economy"

Rebuttal by SGCA 3.

Such a dismissal of the single global currency by economists is common.  Another phraseis "not in my lifetime".  However, that is probably similar to the reaction given to those advocates of a single European currency in the 1980's.    The Single Global Currency will be promote a more prosperous world and we should begin planning for it now.  Today is, in many way, yesterday's Utopia.

 

Invitation

If you view the single global currency as harmful (disutility) to the people of the world, or if you view it impossible or nearly impossible to achieve (infeasibility), and if you wish to your views to be published here, please send to Single Global Currency Association