The Case for a Single Currency

Abstract

Abstract. Amidst the continued economic woes in the EU, lagging growth in China, the relative strengths and weaknesses of the dollar and other major currencies, and various and sundry articles about banker fraud, derivative-induced collapses, and general economic malaise, there lies an undercurrent of debate about a potential common monetary destiny: a single global currency. This paper evaluates eight currency candidates across the three roles of money and creates a typology of 70 nations using aggregate freedom scores from Freedom House and data from Bank for International Settlements (BIS) and the International Monetary Fund (IMF) to estimate banking system soundness. While some monetary units appear better suited for the monopoly role, none satisfies political criteria. Thirty-five nations scored well on total freedom and banking system stability and may serve as initial adopters if a currency candidate survives the political environment. Implementation concerns remain.Keywords: Global currency; currency; monetary reform; world currency The International Monetary System (IMS)The international monetary system is composed of exchange rate arrangements, capital flows and institutions, rules, and conventions governing the system's operations. Domestic policy generally falls into conformance [1]. Many argue that the international monetary system (IMS) is in desperate need of reform and that something must be done very soon to avoid catastrophe [1,2,3,4,5]. Alessandrini and Fratianni argue that the global instability derives from a deteriorating US dollar [6] and Subacchi called our system of volatile fiscal normalcy, "stable disequilibrium" [4, 668] presumably because it suffers from monstrous complexity, overextensions, burdensome debt and deficits, development here but poverty there, and central banks that have run out of ammunition to salve the world's economic wounds. Exchange rate and balance of payment imbalances, deflation in commodity demand, sudden currency devaluations, latent and patent wars, civil and religious conflicts, terrorism and fiscal imbalance, structural unemployment, and anti-austerity rallies [7] have prompted many to argue the time is right to move toward a single currency. But why would a single unit solve these problems? Exchange rate and balance of payments problems serve as a primary impetus for a single currency while others feel, for reasons of equity and cooperation, it is time to move away from a one currency reserve and create a new unit based on a basket of several existing, strong currencies. MethodologyThe shift to a single currency would represent a policy change of massive global proportions. Every nation, its businesses, every central bank, world bodies, retailers, households, and debt and pension fund holders would undergo huge recalculations in their budgets or portfolios. In the world of geopolitics, nothing is certain and, in modern times, since the modern world has never seen a global currency, there is no direct data by which to measure the success of one currency op...