Not the Global Currency, But the National Currency

Here is a nice piece of writing by Daisuke Ito, a member of the Global Economics Team, about the potentials of a universal currency:

Every country has developed a currency of their own. Nowadays, as transportation systems and internet technologies continue to improve, the global economy is growing closer together. A company can transfer goods and services to anywhere in the world. This situation leads to new types of financial risks. Some researchers say that abolishing national currencies and setting a global currency will result in a good effect on the world economy. Although a global currency could get rid of currency exchange risks, it would lead to three negative impacts on the global market: degenerating economy, losing identities, and difficulties in management. 

Supporters of the global currency claim that the currency can end the risks associated with currency exchange rates. Actually, a global currency may make world business pick up in the short run. However, establishing a global currency will result in economic degeneration. A currency is valued by people. If people trust a government, they regard $100 as $100. However, if a country faces a scandal or a crisis, investors will transfer money from that currency to another currency in order to keep their asset values. Moreover, when a global currency is settled and the value of the currency drops, investors will buy real assets such as gold or silver instead of holding the currency. In this situation, it is difficult to value gold or silver when there is only a single currency to base off of. Therefore, introducing a global currency will result in an inconvenient way of economic trade, and world business will degenerate. 

Supporters of the global currency also argue that currencies’ roles are not a representative of national identity but a tool of economic trades. The national currencies represent national identities; most of the world currencies are printed with historic important persons, national heritages, national parks, and architectures. These things make a currency part of national identity. In addition, there are many memorial coins or currencies in the world. In fact, the United States publishes and creates varieties of coins and currencies. These coins and currencies have two roles: celebrating personal accomplishment, and forming the national identity. Furthermore, if a global currency replaces national currencies, central bank will lose their identities. A central bank has an essential role of keeping the national safe. The bank has to maintain a balanced national economy by adjusting the interest rate and adjusting the quantity of the currency. 

The final argument advanced by supporter of a global currency supporter is that a global currency leads to the difficulty of management. When a world organization sets a global currency like Euro, it is hard to set money exchange rates from the national currencies to the global currency. Now, the world currencies exchange rates change day by day. It means that we cannot decide which currency has a higher value or which currency has a lower value. However, the organization has to establish the world exchange rates in order to set a global currency. In addition, the global currency organization, which will maintain the global currency by using adjustment of the interest rates and adjustment of the quantities of a global currency policy, will face difficulty in managing the world economy. When the organization makes a decision to lower central bank interested rates because of recession in one country, the country’s economic situation will get better. However, another country where business is brisk will suffer from inflation. 

Moreover, the organization committees should be constituted by people from all over the world in order to avoid a country possessing monopolized power. No matter how this situation is achieved, the organization will face hardship to unify the opinions because philosophies and situations vary from country to country. For instance, the United State is a right wing country, but Germany is a left wing. These two countries have far different opinions about economic policies. The German government takes care of people very well while the United States principles are based on self-responsibility. 

A global currency seems to be one solution to the world currency problem. However, the system has both negative and positive impacts on a country, and either impact appears depending on their economic situations. Moreover, the governing organization will face a decision making dilemma and a hardship of achieving an international consensus. Overall, setting a global currency is nothing but a negative spiral. 

Written by Daisuke Ito