Why doesn't the world have one currency?

[Elind]

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?

You've probably had an earful on this already, but I don't want to read the obvious, just type it.

So who do you want to have decide who prints what may become your toilet paper? The UN?

 

[The Central Scrutinizer]

That's nominal value, not real value! Sheesh...

What color is the sky in your world?

 

[bjornart]

I'm not an economist and I'm not planning to become one, so ignore anything I may have posted earlier and answer these questions for my edumacation.

Remember: when you redeem the gold, your $1000 is taken out of circulation. Whereas 100 grams of gold is now in the commodity market where it wasn't before. So you have fewer dollars chasing after more gold, and the commodity price of gold drops.

So the nominal (did I get that right?) value of gold is influenced by its use as a backing for the dollar, right?

Now how are you going to determine the real (and unchangeable if I understand you correctly) value of gold for the initial print run of gold backed dollars?

If the commodity gold is cheaper, then the dollars are worth more than the gold. So you're going to keep your dollars and spend them in the economy. And BTW, the Federal Reserve wouldn't exist anymore.

Okay, so redeeming and not redeeming dollars should keep the nominal price of gold somewhat close to what the dollar bills says the real value is. And the FR is out of business. Now who's going to issue the bills, and what will be their incentive to do so?

 

[dann]

"Why doesn't the world have one currency?"

Well, one very important reason is that it's not one world. When issuing dollar bills the US state has access to all the goods sold by people who accept this currency, in principle everybody, because they have faith in the dollar as a currency, as money, because they have faith in the power of the USA to back up its currency, which is still a kind of IOUs even though it is no longer tied to gold the way it used to be.
Thus the USA would not be opposed to the dollar being used immediately to buy goods everywhere, since this would mean immediate access to these goods. However, it would be opposed to any other national state issuing dollar bills!
US-$$ circulating in a neighbouring country were recently replaced by pesos convertibles, establishing a functioning national currency (and at the same time getting access to a whole lot of 'free money' to be used in the world market - a brillant move, in my opinion), though not a very popular move in Washington, I think.

Currency and its value is explained here: http://www.gegenstandpunkt.com/english/currency.html
Not easily read, but also not impossible to get through for people like Bjornart who are not economists and don't plan to become economists.

 

[shanek]

So the nominal (did I get that right?) value of gold is influenced by its use as a backing for the dollar, right?

Yes.

Now how are you going to determine the real (and unchangeable if I understand you correctly) value of gold for the initial print run of gold backed dollars?

As I said, take the number of dollars you want circulating in the economy, take the amount of gold you have, divide.

Okay, so redeeming and not redeeming dollars should keep the nominal price of gold somewhat close to what the dollar bills says the real value is. And the FR is out of business. Now who's going to issue the bills, and what will be their incentive to do so?

The Treasury would issue them, just as they did before the Fed (and continued to somewhat do later until the gold standard was decimated). Check these out:

 

[shanek]

Do you know what happens when you try and make an FX transaction with e-gold?

Well, they take the price of the good in, say, Australian dollars. Then they work out what the current price of gold is in Australian Dollars using a spot gold price and a spot USD/AUD exchange rate. Then they calculate how much gold represents that value at the time of the transaction and that is how much e-gold you pay.

Uh, no, they don't. They transfer direct weights of gold from one account to another. You can do the above calculations to find out how much gold you want to transfer if you want the equivalent of USD or whatever, but the actual exchange is done in weight units of gold.

e-gold could not be used as a medium for exchange without the existence of real money - Aussie and US Dollars in this case.

Yes, it could. You could easily go and pay for something in grams of gold. You are just plain wrong here.

 

[WildCat]

The real value of gold is the actual value of the gold based on how much it's desired and what you can do with it.

No, that is the nominal rate, as you've said so yourself. The real rate is something else, and it never changes according to you. So, what is the real rate? Preferably in dollars.

I won't hold my breath waiting for a clear answer.

 

[The Central Scrutinizer]

The Treasury would issue them, just as they did before the Fed (and continued to somewhat do later until the gold standard was decimated).

Speaking of the Fed, you have repeatedly stated that ALL banks are forced (at gun point) to belong to the Fed. Several skeptics have shown that you are wrong. Now you are making a claim regarding gold and money. Should skeptics just assume you are wrong again?

 

[bjornart]

Yes.

As I said, take the number of dollars you want circulating in the economy, take the amount of gold you have, divide.

The Treasury would issue them, just as they did before the Fed (and continued to somewhat do later until the gold standard was decimated).

And the US economy would function fine for forever with this limit (the number of dollars in circulation)?

 

[WildCat]

No, that is the nominal rate, as you've said so yourself. The real rate is something else, and it never changes according to you. So, what is the real rate? Preferably in dollars.

I won't hold my breath waiting for a clear answer.

I at least expected a convoluted answer by now.

 

[epepke]

I think that the OP and most of the responses here are back-assward.

Currency doesn't exist because some sort of Medieval United Nations decided that there should be currency.

Currency exists because goldsmiths invented it. They later became banks. Even later, some of the functions of banks got taken over by government. (But not entirely; when I first went to Britain, there were three Scottish banks printing bank notes.) To this day, British bank notes say "I promise to pay the bearer on demand." Up until 1952, a similar slogan appeared on American bills.

People have found uses for different currency rates, but that isn't the reason. The reason is that there isn't some big World-wide Socialist Daddy who makes everything make sense. Everything in your life that you take for granted was thought up by some individual nutcase who had an idea. Everything, without exception. Some of them have percolated upward through governments, corporations, or sheer popularity. But this is how things work.

 

[Earthborn]

No, that is the nominal rate, as you've said so yourself.

Actually he didn't say that. He said that the nominal rate is the amount of money people are willing to spend on it, not the value they attribute to it.

The real rate is something else, and it never changes according to you. So, what is the real rate? Preferably in dollars.

A bit of Google searching told me what economists mean with 'real' value: inflation adjusted value. So you can't say what real value is in dollars, you'll have to do it in the dollars of a specified period of time.

Of course that does not mean the 'real' value is fixed: people can value something more or less in different times and that will be reflected in the 'real' value. People who promote a gold standard are probably hoping gold won't fluctuate in 'real value' too much, but if there is a gold standard and a solid gold asteroid drops on the earth I think people will still experience a drop in the value of their money.

Well, that's how I understand it. The economists on this board can correct me where I went wrong.

Also check Wikipedia on the Gold Standard

 

[shanek]

No, that is the nominal rate, as you've said so yourself.

No, the nominal rate is the rate expressed in dollars or some other form of currency.

So, what is the real rate? Preferably in dollars.

It's just like trying to deal with my autistic son some days...

 

[shanek]

And the US economy would function fine for forever with this limit (the number of dollars in circulation)?

Sure. What causes the problem is the ability of the government to print dollars at will. There must be a limiting factor. The fact that they would have to get a certain amount of gold to print more money is such a limiting factor.

 

[shanek]

Of course that does not mean the 'real' value is fixed: people can value something more or less in different times and that will be reflected in the 'real' value.

True. And I've already mentioned two things that can affect the real value of gold: if new gold is put into the market, and if someone finds a new use for gold.

People who promote a gold standard are probably hoping gold won't fluctuate in 'real value' too much,

History has shown that it won't. In fact, most people who invest in gold do so because it holds its own very well against inflation.

 

[dann]

Currency doesn't exist because some sort of Medieval United Nations decided that there should be currency.

Currency exists because goldsmiths invented it.

No, goldsmiths make jewelry, not currency:

"But also in those former times, when gold coins were being circulated and paper money was actually just an order for quantities of specie; in those times too this madness was not a property or emanation of the metallic material of money. Instead, just as it is now in our modern paper-money economy, this lunacy was the deed of the supreme power." http://www.gegenstandpunkt.com/english/currency.html

Which is the reason why old coins have the portraits of emperors printed on them, not of goldsmiths!

 

[dann]

History has shown that it (gold) won't (fluctuate in value too much). In fact, most people who invest in gold do so because it holds its own very well against inflation.

No, history has only shown that so far it hasn't, not that it won't!

What would "affect the real value of gold", however, would be if a new and much cheaper way of producing gold were introduced, be it due to the discovery of vast quantities of gold much easier accessible than in the mines already in existence, Earthborn's "solid gold asteroid", for instance, or jmproved methods of mining the existing gold resources.
A "new use for gold" probably wouldn't influence the price of gold much, it being the only substance whose main 'use' lets most of it lie around in safes doing nothing most of the time. The value of gold has very little to do with is use-value. Similarly the exchange rate of the dollar doesn't increase when you're in Mexico and discover that you can actually use 1-$ bills to wipe your ass if you've run out of toilet paper!

 

[senor boogie woogie]

Hola!

The US Dollar is more or less a world currency, to the point that some nations like Equador has made the dollar the "official" currency. The dollar is known worldwide, everywhere.]

Senor

 

[bjornart]

Sure. What causes the problem is the ability of the government to print dollars at will. There must be a limiting factor. The fact that they would have to get a certain amount of gold to print more money is such a limiting factor.

Won't this lead to deflation as the economy grows?

 

[shanek]

Won't this lead to deflation as the economy grows?

No; economic growth does not lead to deflation. The economy grows as production becomes more efficient; this effect tends to lower prices over time. A lot of people think that means deflation, but it doesn't. Allow me to illustrate.

Let's consider an economy where the only thing produced is widgets. We can get everything we need to live and be happy as long as we have enough widgets. Everyone works at the widget factory, and the only stores are widget stores (okay, people would work there, too...but you get the idea).

Widgets take a certain amount of materials and labor to put into existance. They need to be loaded onto the widget-mobiles and shipped to the widget stores. Let's say that the entire cost of widget production is $5 per unit and they sell for $6 apiece, making a $1 profit. Let's also say there are 100,000 widgets and $600,000 floating around the economy.

Now, WidgeCo finds a way of making widgets with fewer materials, and also installs some new technology that allow the workers to make widgets more efficiently. WidgEx designs some more efficient routes to get the widgets to the store more quickly, and Widgets-R-Us streamlines the shopping process. As a result of all of this, widgets now cost $4 to make and have a shelf price of $5. This is not deflation. What has actually happened is that $100,000 of capital has been freed up in the economy, which can now be used for other things: to produce even more widgets, investment in new widget-making technology, etc.

But let's reset and go a different route...Instead of the new efficiencies put into the system, let's say a bunch of people get together and burn $100,000. Now we have less money chasing after the widgets. But all other things are equal, so the drop of the price of widgets to $5 reflects a change in the value of the dollar, not a change in the cost of producing widgets. The difference is that there's not that extra $100,000 in extra capital. We've essentially just redefined what the dollar means. That's deflation.

Get the difference?