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Why doesn't the world have one currency?

jay gw

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Other than tradition, is there any reason for the world to have multiple/national currencies?

It seems like it would make more sense to have one global currency, rather than 150 or so, because there wouldn't be any disastrous devaluations, the kind that plague poor countries. About 20 years of growth in Asia was wiped away when they had their currency problems. Same thing with Mexico a couple of decades ago, the middle class was mostly wiped out.

Only the rich survive a serious devaluation of a nation's currency because they hold multiple currencies or just hold US dollars. The poorest don't care because they don't have any currency anyway.

But holding only US dollars/euros means that a poor country's currency will never see a value increase. If everyone just holds euros, why bother increasing the value of the peso?

Does anyone have insights?
 
I'll give you a hint.

One Euro started out as equal to one American dollar.
 
Having different currencies introduce flexibility. If a country for some reason looses competitiveness then this can be compensated for by lowering the exchange rate. If all countries had the same currency then the compensation would have to take place by fx a pay reduction. This is effectively the same as a devaluation but it generally takes longer time to accomplish leading to a transfer period with higher unemployment.
 
One Euro started out as equal to one American dollar.
Click to expand...

So what? Every country has regions of properity and poverty. So does the world. What difference does it make that one region of the world would do better economically than another? That's not an argument for one currency.

The reason it's not is because economic progress is measured in many ways, not one single way using currency as a guide. There's productivity, GDP, wages, prices and so on.

Transforming from many to one currency does nothing to change the measure of progress and economic planning. It just means that countries will not lose all progress and impoverish the middle classes because of bad planning. Overnight, the value of your biggest assets become worthless. Happens all the time.

More economic diversity underlying a currency = more stability.

Poorer nations will NEVER have strong currencies. In order to gain a stable currency, it would be necessary for them to completely revolutionize their entire nation into something Western style.

Never happens. Or at least, so few times I can't recall any.

Here's the Western model of economic aid: give the 1 percent elite in the poor country money, telling them "spend it wisely" and then bail them out when it's gone and they're broke. What they SHOULD be doing is preventing shocks to poor economies from turning disastrous in the first place.

Stupid.
 
Luke T. said:
I'll give you a hint.

One Euro started out as equal to one American dollar.
Click to expand...
If I recall correctly, when the actual currency was introduced one euro was worth about $1.18. Prior to the introduction of the coins and banknotes, I think the euro traded on paper at slightly less than that.
 
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Etc.
 
jay gw said:
So what? Every country has regions of properity and poverty.
Click to expand...
Quite. The US has always been like that - far more in the past than now - and has always operated on the same currency. It's arguable that the single currency has helped to develop the US, as investment is pulled into low-cost regions. Currency conversion and exchange rate uncertainties are an impediment to trade.

That said, until the 1930's US banknote currency was issued by all sorts of banks, from solid through optimistic to downright fraudulent, and were often subject to discounts (or flat rejection) - exchange rates, in effect. The problem with a world currency is control of the money supply. Where's the Central Bank going to be located (CyberSpace?), and how will it be supervised? Who appoints the Board? Tricky problems just within Europe, let alone worldwide.

The Bretton Woods system of fixed exchange rates between the major trading nations was an attempt at a middle path, and worked pretty well in the 50's and 60's, but it failed in the end.
 
Kerberos said:
Having different currencies introduce flexibility. If a country for some reason looses competitiveness then this can be compensated for by lowering the exchange rate.
Click to expand...
In classical economics, the exchange rate will adjust automatically. If a country's trade is in deficit its currency is flowing out of the country, increasing foreign supply and thus reducing its international value. And vice versa. But this assumes free trade and no governmental interference. It also cannot cope with the speculative flows of today, which can completely swamp normal business trading.
If all countries had the same currency then the compensation would have to take place by fx a pay reduction. This is effectively the same as a devaluation but it generally takes longer time to accomplish leading to a transfer period with higher unemployment.
Click to expand...
The pay-cut only applies to the internationally-traded part of the economy. In effect, it increases the pay of forign workers. This provides an incentive for import-substitution by local producers (job creation), and a change in spending patterns. Classically speaking, that is. In a globalised economy like today's, very little is truly local.
 
Having one currency would put all the eggs in one basket: if the worldwide currency is devalued, the entire world has a problem. It also requires massive coordination: how are you going to get inflation and interest to match? And who's going to be in charge of the currency? Would all the other countries be able to trust the country in charge? What happens if two countries with the same currency go to war? How would that work?
 
One of the pre-requisites for the introduction of the Euro is that the economies of the member countries should be harmonsied in terms of their model, their position in the economic cycle and their debt positions.

This meant that (braodly) the same economic circumstances were in place in the member countries and decisions could be made based on this.

If one part of the Euro zone is racing away and requires relatively high interest rates to control things where another has real problems then a single rate would be injurious to one or both. IIRC having different interest rates within a single currency woudl merely further imbalance the economic situation as capital seeks out the high rate of return (currency movements tend to offset interest rates).
 
I think we do have one currency. Gold. I don't think there has been a time in history or a civilization that has not valued gold. Unless you meant: "why doesn't the world have one paper currency?"
 
It is vital for a country's economy to have its own currency. Without it, you wouldn't have the international currency trade which ensures that every dollar (or whatever) that goes out of the country comes right back in.

I'll give you an example: the economically ignorant make the claim that jobs moving overseas, say, to India, is, well, "Daytukarjawbz!!!!" What they don't realize is that we still pay for the goods in dollars, but the Indian workers need to be paid in rupees. So the company gets dollars from Americans and needs to change them to rupees; it can only do this by finding someone with the appropriate number of rupees to exchange them for dollars. That person wants the dollar for a reason, and that reason is to either purchase American goods or invest in American investments. There's just nothing else that can be done with the money.

(Of course, that relation is indirect; the company could exchange the dollar to yen and the yen to rupees, or the person getting the dollars could be getting them to exchange for some other currency, but ultimately the above is what happens.)

The effect of all this is that any dollar that leaves the economy comes back in three months. And far from moaning about the trade deficit, we should realize that the trade deficit is matched dollar-for-dollar with foreign investment and the capital comes back into the economy to stimulate economic growth.

Here's a thread where this was discussed at length. Notice the blind and willful ignorance of people who just don't want to accept what you'd learn in a beginning macroeconomics class:

http://www.randi.org/vbulletin/showthread.php?s=&threadid=26226

And here's a thread partially transcribing a beginning macroeconomics class, where this exact phenomenon is discussed:

http://www.shanekillian.org/jref/macroeconomics.html
 
DaChew said:
I think we do have one currency. Gold. I don't think there has been a time in history or a civilization that has not valued gold. Unless you meant: "why doesn't the world have one paper currency?"
Click to expand...

Gold is still the #2 form of money in the world, next to the dollar. I don't know why the economically ignorant still insist there'd be gloom-and-doom if we went back to using gold as money, except, of course, for the fact that they're economically ignorant.

Check out The Case for a Genuine Gold Dollar by Murray Rothbard. It actually covers a lot of things that are relevant to this thread, such as the reason that currencies devaluate.
 
I'm genuinely ignorant about this (as opposed to pretending to be).

If a currency were to revert to the gold standard, would they be required to hold enough gold bullion to cover all the money in circulation (whatever that means - I think I mean notes and coins - I'm not sure what impact the growth of short term debt has on this, is my credit card viewed as cash in this context?)?
The measure is M2 which includes credit. The answer is "it depends" a 100% standard would require enough is held to cover all - there are less rigourous measures

If they do, is there enough gold to go 'round ?
If not the price of gold will rise until there is enough to go around

If there is, what effect will this have on the gold price as a great proportion of the available gold has to sit in vaults ?
It masy rise, which way have an impact on those that use gold industrially

If two currencies are tied to gold, does this mean they have a fixed exchange rate unless one or other devalues by saying that it is worth less gold ?
Yes, it used to happen regularly but infrequently

Edited to add the answers to my own questions in italics. There appear to be no independent assessments easily available, they all seem to be very pro or very anti
 
shanek said:
Gold is still the #2 form of money in the world, next to the dollar. I don't know why the economically ignorant still insist there'd be gloom-and-doom if we went back to using gold as money, except, of course, for the fact that they're economically ignorant.

Check out The Case for a Genuine Gold Dollar by Murray Rothbard. It actually covers a lot of things that are relevant to this thread, such as the reason that currencies devaluate.
Click to expand...

I think the doom-and-gloom comes from the understanding that a gold standard either gold coinage or currency backed by actual gold reserves makes government deficit spending impossible. A government couldn't simply print paper without having the gold to back it up. Government spending becomes very difficult.
 
I think it's odd that economists have to argue their ideas again and again.

If your idea is self evident, why does anyone need to argue it?

The posts about macroeconomic theory do not answer why there's a need for multiple currencies.

If people in country X had the same currency as Americans, they wouldn't need to exchange anything. Money wouldn't need to be physically cargoed to other countries. There would be printers in their country printing the money off.

And - the post about one global currency being devalued....how does that happen exactly? Devalued in relation to WHAT?

Valuations of currency are hocus pocus. Money itself isn't worth anything. The fact that people BELIEVE that it's worth something is what makes it worth something.

And - the post about inflation and interest rates. Why would it matter that two countries have different interest rates? Every country has different interest rates internally. Hasn't stopped anything, has it?
 
Countries give up economics tools when they give up their own currency. For example, Germany is in a period of low growth and needs a lower interest. Ireland is in a period of high growth and needs a higher interest rate to prevent inflation. But because both are stuck in the Euro zone they have no flexibility.

The EU has relatively similar countries. It would be impossible to create a currency that would match the needs of China, Japan and Zimbabwe at the same time.

Of course, the flexibility can be misused by incompetent governments causing hyperinflation and massive currency devaluations.

CBL
 
jay gw said:
If people in country X had the same currency as Americans [...]Money wouldn't need to be physically cargoed to other countries. There would be printers in their country printing the money off.
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What would control the amount of money printed and what would prevent money from being physically cargoed back into the US?

One day, the government of Mexico could print a million dollars in US currency and send 100 employees of the Mexican government to the US, with $10,000 each. Each employee would be instructed to buy $10,000 worth of goods and transport the goods back to Mexico. Free goods for the government of Mexico!
 
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