World wide monetary system

Today during lunch I had a random thought: What if every country used the same currency? Wouldn't that simplify things a lot? I work at a bank, so I guess that thought might not have been too random, and I can say that it would cut out quite a few issues.

It's probably not worth the time and energy that would be involved in forcing the world to convert and there would surely be loads of squabbling over the details of the new currency.

Just a random lunchtime thought that I figured might inspire interesting discussion. Thoughts?

That's what Europe tried.. and now Greece is struggling to stay afloat with many of their citizens in poverty. Countries all work very differently, so I think they should have the power to control their own currency.

A crash course in macroeconomics:

The exchange rate is determined by the value of imports to exports between two trading countries (with different currencies). When Country A's currency weakens what happens is that Country B's currency is worth more in comparison, this allows Country B to buy more goods and services from Country A this increases the amount of net value of imports for Country B. At the same time because their currency is worth more in comparison to Country A, the price of Country B's goods in Country A increases (it costs more for Country A to import stuff), this has the net effect of decreasing the value of Country B's exports. What then happens is that, because the value of imports relative to exports has changed, the exchange rate changes to a new number and so on and so forth.

The amount of trade between two countries will be determined by many things, but what happens to businesses in the two countries is that net importers will be better off with a strong currency (because the other country's currency is cheap) and net net exporters will be better off with a weak currency (since their goods will be cheaper in comparison to the other country). Fluctuations in the exchange rate will help or harm both sets of businesses to some degree.

What happens however when the countries have the same currency? Well if something changes in one country but not another (such as a government imposing a tax etc) then the adjustments that would normally be represented through the exchange rate will be represented somewhere else. These adjustments might be in the form of increased/decreased unemployment, labour productivity, business investment and so on.

Take Iceland as a case study. Iceland's main trading partner is the EU, but Iceland (like Portugal, Ireland, Greece and Spain (PIGS)) was hit hard by the financial crises. However unlike the PIGS Iceland had a free-floating currency so when it started suffering economically it's currency devalued hugely, this made all of its exports much cheaper in comparison and that prevented a lot of the issues that the PIGS faced.

Another issue that arises from countries having the same currency is to do with the various economic policies that governments can pursue. These economic policies are typically either Monetary (short term), Fiscal (medium term) or Supply Side (long term). Supply side is investment in things such as infrastructure or schools etc, fiscal is typically changes to taxation and subsidies, and monetary is changes directly to the value of the currency such as Quantative Easing (QE) and the setting of interest rates (which make borrowing more or less expensive).

If two countries share a currency however then one government can't just change the value of the currency through Monetary policy, because any change in one country will affect the other country, so any Monetary Policy will be pursued through agreement of both parties, or through a third party charged with handling Monetary Policy (such as the European Central Bank (ECB)).

The problem with changing the value of the currency when that currency is shared between two or more countries is that depending on the economic situation in a particular country Monetary Policy will have different effects. Of course this is no problem if the countries which share the currency are pretty similar anyway, because then Monetary Policy will effect them in the same way, if the economies of the countries are different however then Monetary Policy will have different effects and quite possibly benefit one country while harming another. That is the case in the Eurozone, the economies are too different so Monetary Policy is not as effective as it would be in a non-currency sharing country.

Things are more complex than that but I hope that conveys the basic idea

All countries having the same currency would make a lot of sense in some ways but the idea has some nasty flaws - as Edan correctly points out.
The nation-state has worked as an economic unit for a good few centuries because individual sovereign countries could control their interest rates and currency valuation vs other currencies (in theory), as well as their tax receipts and public spending. Greece adopted a currency where they couldn't control their interest rate (basically the Bundesbank in Germany does that). Greece has been in the process of discovering how bad that can be for the last 5-6 years - 55% youth unemployment is a recipe for revolution.
So countries that share currencies need to share control over their public borrowing and public spending, and that means centralized government. They need to be fiscally integrated. If you had one currency globally, you would need to have all borrowing and spending decision making powers centralized: globalized. One world government. At the moment at least, that's a bad idea because it would be extremely difficult to make that democratic in anything other than name only.
I worked in banking for 16 years and I apologize for this rather boring answer!!

The whole world argreeing on something, now that would be a good thing to see :lol:

It might be seen as better for the world to have migration minimalized to avoid rapid population pressures in certain locations, and one way could be to keep wealth defined in a the most liquid form as possible. A global currency might shift that away from 'money' and towards 'resources' which might promote higher level commitments in terms of human migration ie more war as location becomes more valuable then cash due in part to avoiding transport & storage costs to get the required resources - being maybe one of the main difference in cost for different locations of a single currency. That's about as far as my armchair economist brain goes with it
:blink:

besides being prophesied it is the logical conclusion. someday some force will control the whole world, attempts have been made, and whose to say none of them succeeded. one world. one government. one monetary system.

I hope this force will not be of one of sheer commerce, power and politics. I dare to say the unification may not be forced. It comes from the balance. And I see no balance in enforcing one's will upon another whether in socialization or in politics.

What happens now with currencies in my country, Russia, is hard for me. I do not want to touch the dirty matter of world policy, but I feel it is my duty to speak for the land that nurtured me. The complicated and rough land that has managed to keep itself independent and true in times of turmoil but did not yet realized the costs of it. I deem this economical and trade blockade attempts on Russia wrong. Not because it is my home, but because it is ill for the world at large.
If asked for, I will try to provide any info on the situation with Ukraine crisis from Russian point of view and will do my best to stay objective, tolerant and true, 1st of all, to Jedi ideals.

As of a single currency, I see only something like bitcoin v.2.0 in that role.

Edan wrote: That's what Europe tried.. and now Greece is struggling to stay afloat with many of their citizens in poverty. Countries all work very differently, so I think they should have the power to control their own currency.

That may be true, but we shouldn't forget a few things:

- Greece lied about their finances so they could join the Euro zone. The safeguards work but if the euro members misreport numbers, those safeguards obviously are led ad absurdum. The mistake the EU made was they didn't kick out Greece when it was discovered that they'd lied.

- people want the Euro to fail. There are other federal states with common currencies. Nobody would devaluate the US $ because Alabama's economy is comparable to that of a third world country. Nobody would devaluate the Swiss Franc because the Canton of Ticino has unemployment numbers that are 5 times that of the national average. But if one Euro zone country struggles, the entire world points its finger.

The Euro is a good thing, in my opinion, and Switzerland, at least at the moment, would be far better off being a member than sticking to the Franc, for example.

Physical currencies are a relict of ancient times - ideas such as Bitcoin sound very promising, as long as they're not founded on corruption, obviously.

Cyan:
Edan and Akkarin are from the UK (the most indebted country in the eu), meaning their opinions will be extremely biased against the euro. It's probably not by choice though, the anti-eu and anti-euro propaganda here is absolutely insane. Britain tried to join the euro but failed (and joined the eu and also kinda failed lol). As strange as it may sound, switzerland is "more" part of the EU than the UK is. A good example is how switzerland and part of schengen and the UK isn't.

The greek situation is a bit more complex though. Yes greece lied. They were desperate to get the euro due to its obvious stability/power. They greatly benefitted from it. But that's also where the problem was. Greece has a history of getting indebted and then defaulting. Their credit rating was therefore rubbish, and only joining the euro would end that.
They did it again. A huge chunk of their debt was written off, they were told that taxes aren't optional, but they still can't pull their fingers out of their bums. (*cough* as you can tell a company i am a shareholder of [strike]has had[/strike] was forced to write off a huge chunk of their debt)

Your comparison to the US dollar is pretty bang on. The different states have different tax policies, different minimum and median wages. The currency is perfectly fine. Their debt is absolutely humongous though, and that's where the problems begin (it's about twice the size of EU debt). The US though have benefited from the Bretton woods system, and to this day the US dollar is a major reserve currency, which helps with the currency's stability.

Nowadays countries are more likely to peg their currencies to the euro (almost the same as adopting it, just using differentnotes and coins really), and I think there's about 500 million people worldwide who either use the euro or have their currency pegged to it?

Overall Goken there's nothing wrong with having a one-world currency at all, after all, if all you own is a cow, and all some guy in south-east asia owns an identical cow, it makes no sense for his belongings to be valued at 2 dollars whilst yours are at 2000. The reality we live in is that currencies are valued speculatively in order to serve certain people's agendas (usually get richer, "rich" being a relative term) those same people create currency through debt, which also is a factor in valuating currency. Basically they always win, but they take us (the richest in the world) along for part of the ride so we only ever complain when we get a taste of what it's like to live like the 80% others.

One currency ...hmm so not only do we unite the good we unite the bad. Does the good out weight the bad? Are there more of those who have the fortitude to maintain the better rather than the worst? I would hope so but I seriously doubt it.

Can our species govern it self unified ? It can. Has it? Hmmm well... If we unify monies... Hmmm nice thought but not probable. Smaller cells yes, but in the vast scheme of things we may not prevail. Only my own thoughts