Could there be a single global currency? Top-down and bottom-up approach
Like it has more than once been suggested throughout history, the world should think about a unified, global currency. This should nevertheless go hand in hand with to a unified, global economic policy (and therefore strong international institutions should be created, with a large power of manoeuvre and independence) and to stronger political links between the countries making up the world system. Is it possible to achieve this kind of integration?
According to several economists and politicians, as a matter of fact a global currency does exist, and it is nothing less than the U.S. dollar. This interpretation could be seen as partly true. Most of the international trade is priced in dollars. Since the birth of the Bretton Woods international monetary system, this currency became the most prominent in international affairs, and the whole world invested in the dollar. France’s then-finance minister, later its president, Valéry Giscard d'Estaing, called the “reserve currency” status of the dollar an “exorbitant privilege”. But it appears clear that what had been an “exorbitant privilege” has turned out to be a massive liability.
John Maynard Keynes, advocated a single currency for the post-War economies of the West at the 1944 Bretton Woods conference, the Bancor, when it seemed clear the war would be won. In effect, a “free world” currency appeared, the U.S. dollar, which in turn was pegged to gold. But economic imbalances in trade and money creation persuaded President Richard Nixon to cut the link between the dollar and gold in 1971, suggesting just how hard it is to maintain a single world currency. A monetary system based on a reserve currency is unsustainable, since foreign official dollar reserves (for example) are acquired and must be repaid in goods. In other words, the increase in official dollar reserves equals the net exports of the rest of the world, which means it must also equal U.S. international payments deficits. This shows how the attempts made by the dollar to be a world currency bears big side effects, expecially when this attempts comes from a country which tries to impose itself as global hegemon also through the monetary policy. In the current world, the main examples of a unified currency for a large area of the world is definitely the Euro, which can be used as one of the most concrete case study for a more discrete and spatially limited monetary integration in a portion of the globe.
One of the original goals of the Euro was to raise the overall productivity of the European economy, as weaker, smaller countries had to become more competitive with larger, stronger countries. At the end of the day many economists agree on the fact that the opposite happened. Weaker countries enjoyed higher purchasing power without having to produce more goods and services. Overall productivity growth slowed in Europe from 1.6 percent a year before the Euro to half that pace since.
The Euro also suffers from the fragmented political structure that governs the economy it represents. Since each member country can issue its own debt, the euro is used in 16 different bond markets. Each country sets its own tax and spending policies; some countries now carry debts larger than their gross domestic product.
As outlined above, a common currency means a common economic policy, which is turning out to be impossible for groups of people with habits as different as those of the Germans and those of the Greeks: so it turns out to be very difficult to imagine this architecture to work for parts which are at the opposite corners of the Earth.
As long as the global economy consists of a collection of local economies governed by multiple countries, a single global currency would do little to eliminate the resulting imbalances that result from the different economic policies pursued by those sovereign nations.
Unless the world had a single government to maintain uniform fiscal and monetary policies, it would be hard to see how any independent body would be granted sufficient powers to make a workable global currency.
This would be the situation analyzed in a top-down approach. Nevertheless, late in the days, somebody is advocating cryptocurrencies to be the next level in terms of possibilities for the world to reach a unified monetary system, in a bottom-up fashion instead.
Among cryptocurrencies, a preminent role is played by Bitcoin, and I would take it as
case-study. Bitcoin is a relatively new technology; in fact, it is less than a decade old. Created back in 2007, bitcoin is the world’s first decentralized virtual form of currency. As of fall of 2016, it is now an accepted form of payment in dozens of countries around the globe. As more nations continue to adopt this groundbreaking technology, it increases the chances that bitcoin will in fact become the next global form of currency and one of the few not tied to a specific nation’s economy or a banking system.
estimate than in just three years, by the year 2019, there will be five million active bitcoin users. Of this five million, fifty-one percent of users are expected to be outside the United States. These are impressive statistics; however, it is needed to analyze an even more impressive estimation: bitcoins are expected to be the world’s sixth largest reserve currency by the year 2030.
This would represent a bottom-up approach to the problem of a global currency. This system would eliminate the need for intermediaries and financial institution, for it is based on a peer-to-peer approach to monetary mechanism. It virtually has no cost of transaction and would level the differences through different parts of the world. Nevertheless, it is extremely volatile and therefore it could hardly be reliable for mass investments. Moreover, It is hardly likely that financial institutions and states would allow their authority to be ripped off by this “threat” that easily.
A global currency would potentially be beneficial for every part involved. Developed nations would certainly benefit, since there would no longer be currency risk in international trade. In addition, there would be somewhat of a leveling of the global playing field, since nations like China could no longer use currency exchange as a means to make their goods cheaper on the global market, for example.
Developing countries might benefit considerably with the introduction of a stable currency which would form a base for future economic development. Nevertheless, the practical implementation of this project would mean most likely that the strongest countries would take the lead in the realization of this structure, possibly looking after their interests at the expenses of those of the weakest countries.
Of course the international cooperation and management in the monetary system is something which should be pursued by every country in the world in a cooperative fashion, for it would help harmonize the different economies and would create a more uniform arena in which there would be freer movement of capital and liberty of investment. But this comes in contrast with the particular interests of every country, in a competing and anarchic environment like the one characterizing the international relations.
This would, and hopefully will, be overcome in the advent of major challenges threatening the overall world system, such as domestic (major recessions, ecologic problems, destabilizing actors endangering the whole system) or futuristic outside challenges.
To conclude, the advent of a global currency is as beautiful, as it is impracticable, at least for the moment. As it always happens in these cases, it is basically impossible to realize any realiable political prevision concerning the topic, but according to the actual situation in the international chessboard, despite the call for a global currency made by China lately in order to undermine the absolute preminence of the Dollar, and dspit the advantages which may come out of it, it is highly unlikely for it to happen anytime soon.