Economic Advantages and Disadvantages of a One Global Currency Essay Example

Single Global Currency

Single planetary currency, as one can see from the illustration of Euro, signifies that states, where this currency would be implemented, should be the members of a pecuniary brotherhood with one cardinal bank, common currency, a coherent and adhering fiscal policy. Norse Currency Union ( SCU ) , which included Denmark, Norway and Sweden, established a common currency unit, although cardinal Bankss in each of those states retained control over pecuniary policy and did non see important loss of independency ( Bergman, 1999 ) .

The individual planetary currency is a much more complicated issue. History recognizes a batch of pecuniary brotherhoods of different size, both formal and informal. However the most successful illustration came from the European Union, which is the Economic Monetary Union ( EMU ) . There are besides two proposed individual currencies, which potentially may come near the Euro. They are the GCC pecuniary brotherhood currency and the Asiatic Monetary Unit.

Economic Advantages of a Single Global Currency

The advantages of a planetary currency are as follows. First of all, individual currency will extinguish dealing costs, which are linked to international fiscal operations. This will impact both: ordinary citizens who plan to pass money abroad and transnational corporations set abouting international minutess. Different currencies create a batch of incommodiousnesss and barriers. Exchanging one currency for another ever involves currency exchange fees, as Bankss, which provide such currency exchanges, require committees for their services. In the graduated table of states or even pecuniary brotherhoods such outgos on currency exchange fees may make high sums. By extinguishing the demand for currency exchange the pecuniary brotherhoods may salvage resources ( Buiter, 1999, as cited in

Bonpasse, 2008 ) . For case, the European Commission ( EC ) has estimated that due to a individual currency across the European Union 13 to 20 billion of Euro were saved per twelvemonth ( Grauwe, 2007 ) . Furthermore the difference between the currencies ' exchange rates becomes an obstruction for a free flow of trade. As the barrier of different currencies will vanish, the figure of international minutess will increase. Bordo and James ( 2006 ) said that neighbouring states, which are members of a common pecuniary brotherhood, tend to merchandise more often with each other. In a survey conducted by Micco, Stein, and Ordonez ( 2003 ) they found out that trade between EU members increased by 8 to 16 % , after EMU was created ( as cited in Lane, 2006 )

Currency hazards presents are one of the major disadvantages of the modern international fiscal system. Everything, ranged from a natural catastrophe to terroristic onslaught, may impact the value of the currency and as a consequence cause loss. Foreign investors, every bit good as stock holders, have to fudge their hazard, which besides demands extra outgos. Execution of the individual planetary currency will extinguish the hazard of loss, due to currency fluctuations. Furthermore Bonpasse ( n.d. ) points out that the acceptance of a individual planetary currency will salvage 400 billion of US dollars yearly in foreign exchange dealing costs, which come from merchandising 3.8 trillion US dollars every trading twenty-four hours.

Currency misalignment is a procedure when cardinal bank additions or decreases the value of its currency against another for different intents. The most known instances of currency use are the

instances of China and Japan. Both states unnaturally undervalued their currencies, which made their exports more competitory. As the value of Yen and Yuan lessenings, the monetary values on Nipponese and Chinese merchandises will accordingly fall. This has created a great advantage for Nipponese and Chinese merchandises in the market. Today the low value of these currencies, which has nil to make with the existent state of affairs, has created immense troubles for the economic systems of Europe and USA. `` Japan and China, based on all standards related to the IMF definition, have been persistently pull stringsing their currencies to derive an unjust competitory advantage '' ( Preeg, n.d. ) . Obviously with a individual planetary currency, currency use by single states would be impossible. Furthermore there will be no demand of such sorts of `` unjust '' methods.

It is easy to comprehend that jobs of modern-day pecuniary system are currency rate fluctuations. As most of the currencies are `` free '' and are non fixed to any value, there is a immense possibility for currency guesss. For case, bad chances of FOREX market may hold a great impact on economic sciences of states and their fiscal state of affairs. The bad onslaught on the Swedish Krona in 1992 is a perfect illustration. The Central Bank of Sweden had to raise the involvement rate of its currency which caused devaluation of the Krona. Receiving income from currency guesss is acquiring money out of nil. The following benefit from implementing a individual planetary currency will be the riddance of currency guess 's being. The individual planetary currency will show a different pick for speculators: if

they wish to theorize, they will necessitate to take another trade good, as the money of the people will no longer be for sale ( Bonpasse, 2006 ) .

Another job of today 's fiscal system is international militias or foreign exchange militias. As the possibility of a currency clang is high, due to currency hazards and currency guesss, every state holds assets in assorted foreign currencies, which are considered as modesty currencies. Chiefly it is the US dollar, non so frequently it is the Euro or the UK lb. However after implementing the individual planetary currency, this fudging method will be unneeded. As the cardinal bank will abandon the foreign exchange militias, it will salvage a considerable sum of money. `` In 1992 the European Commission estimated that the hereafter Eurozone members might be able to cut down their entire international militias by one-half or $ 200 billion '' ( Bonapasse, 2008 ) .

Disadvantages of a Single Global Currency

Turning to disadvantages of a Global Currency, the most negative side of it is that states will lose the ability to command their fiscal policy. Today every state is able to find their pecuniary policy independently. In order to hold an influence on the economic system, nowadays cardinal Bankss of every state through act uponing exchange rates and adjusting involvement rates, may increase or diminish economic activity. However in instance of a individual planetary currency, alterations in a local state 's fundss, will demand alterations in the planetary graduated table. So with the Global Currency states will lose flexibleness in their pecuniary policy. `` A unvarying policy templet to supply macroeconomic stableness, will restrain a state 's

ability to do independent involvement rates and exchange rate policy '' ( Bonpasse, as cited in Wenzel, 2007, p17 ) .

Another important disadvantage of holding a Global Currency is connected with the difference in economic systems of different states. While there are merely a few developed provinces with strong economic systems, the remainder of the states of the universe have instead weak economic systems, for case the bulk of African states or some South American states. In the universe with a common currency, the weak economic systems shall draw down the remainder, more good off states. If one of the members will confront a crisis, the others will hold to pass their resources in order to stabilise the state of affairs. A perfect illustration could be the debt crisis, which late has occurred in Greece. While the EU/IMF bailout bundle was n't plenty, Germany had to loan about 110 billion Euros in order to salvage the state from bankruptcy. In add-on the crisis had a opportunity to distribute to other states, as it reduced assurance in the economic systems of other EU members.

Decision: Is The Single Global Currency Implementable?

Global Currency as a fiscal system has been foremost mentioned back in the terminal of Nineteen century. The grounds why this system still has non been implemented are instead societal and political, than economical. The first obstruction is national individuality. Most of the states consider their currencies as a national symbol, equal to the flag and the anthem. Obviously people will barely fling their ain national symbol, their beginning of pride. `` Some people are tempted to see such symbols as they do their flags and national

constitutional paperss, and the loss of such symbols can be considered as a national loss '' ( Bonpasse, 2008 ) . Just conceive of how difficult it will be for Americans to abandon dollar and accept a currency with perfectly impersonal name and with impersonal images and marks. In instance of a Global Currency it should be perfectly impersonal, as Euro is.

Political barriers besides should be taken in to account. In the conditions where political tensenesss between two states are possible, implementing a individual currency is a immense job. For case, it is hard to conceive of how USA, Democratic People 's Republic of Korea and Iran, states which have experienced important political tensenesss, would negociate in order to accept a individual currency. Or it is hard to state how it is traveling to work between states which are in province of war like North and South Korea. In add-on, due to political strifes, such issues as supply and printing of the Global Currency would be debatable. As an independent cardinal bank is demanded, the first difference within the states would be about the location of the cardinal bank. Every member of the planetary pecuniary brotherhood would seek to draw the cover over. It is difficult to believe that after deriving rank to the planetary pecuniary brotherhood, states would non get down trying to derive greater influence on the cardinal bank and therefore the pecuniary policy.

Though the procedure of globalisation seems to be unstoppable, we are still far off from being even near to a Global Currency. In my point of position, execution of the individual planetary currency can be compared to the fables about

Eldorado or dreams of Utopia. There is no uncertainty that Global Currency has more benefits than costs. The loss of control of the pecuniary policy is a truly low monetary value for the other advantages of this thought. Throughout the history world tried to give birth to a planetary authorities. League of Nations and UN could function as illustrations. Esperanto as a worldwide linguistic communication besides has been a great proposal, which could simplify the apprehension between states. But both constructs were non successful up to this clip. Unfortunately the individual planetary currency is an thought of such type. Although globalisation and the Internet did convey people around the universe closer to each other, possibly we are still to different to purchase nutrient with the same money. Possibly societal and cultural differences play much bigger function in our life, than we think. USSR made an attempt of wipe outing these differences, but where is the USSR now?