eToro – Forex Trading Forum

[daranuel]

BENEFITS OF A SINGLE WORLD CURRENCY

• DIVIDENDS OF SINGLE CURRENCY INCLUDE BUT NOT LIMITED TO THE FOLLOWING:
• ELIMINATES THE MAINTAINING OF FOREIGN EXCHANGE RESERVES
• DO AWAY WITH CURRENCY RISK, WHICH OFTEN SCARE FOREIGN INVESTORS
• ELIMINATE THE CHANCE OF CURRENCY FAILURE, WHICH WOULD MAKE FOREIGN INVESTMENT DECISIONS MUCH EASIER IN EMERGING ECONOMIES
• SUCH A CURRENCY WOULD IN ONE GO ELIMINATE THE PROBLEM OF CURRENT ACCOUNT DEFICITS AS THERE WOULD BE NO NEED FOR FOREIGN EXCHANGE

• ELIMINATION OF TRANSACTION COSTS RELATED TO TRADING CURRENCIES


WHILE, THE BENEFITS SEEM IMMENSE, SUCH A CURRENCY COULD VIRTUALLY DO AWAY WITH THE NEED FOR FOREX TRADING!! BUT, FOREX TRADERS CAN RELAX FOR NOW AS THE ADOPTION OF SUCH A CURRENCY IS NOT A LIKELIHOOD IN THE NEAR FUTURE DUE TO THE VAST VARIATIONS IN GLOBAL POLITICAL AND ECONOMIC STRUCTURES. SOME OF THE KEY REASONS THAT GO AGAINST A SINGLE CURRENCY INCLUDE:

.
DISADVATAGES ARE
POLITICAL BARRIERS,
POLITICAL PERSPECTIVE BTW NATIONS IS A BIG BARRIER TO THE ADOPTION OF COMMON CURRENCY. IT CAN LEAD TO A LOSS IN POLITICAL SOVEREIGNTY AS MONETARY INTERESTS WOULD NEED TO SURPASS POLITICAL INTERESTS. THIS IS UNLIKELY TO BE ACCEPTABLE TO MOST OF THE NATIONS AND THE IDEA OF A SINGLE CURRENCY MAY BE DIFFICULT TO IMPLEMENT.
INDEPENDENT NATIONAL MONETARY POLICY WILL BE LOST BECOS REGIONS EXPERINCING ECONOMIC DEPRESSION WILL BE UNABLE TO USE THE INTEREST RATE TO BOOST THE ECONOMY, ALSO NATIONS WITH HIGH INFLATION WILL BE HANDICAPPED TO RAISE INTEREST RATE TO CONTAIN INFLATION. MORESO ISLAMIC NATIONS DON’T BELIVE IN INTEREST RATE. SO WHERE DO WE GO FROM HERE.

[yad99in]

A single global currency should be expected to work as well as a unified global government. "Big brother" would certainly look out for the interests of the privileged elites. As it stands, the American currency is already controlled by the money center bankers. American money supply which closely correlates to inflation is already decided by secret meetings of the Federal Reserve Governors, the domain of wealthy bankers. Would it really be prudent and appropriate for our bankers to consolidate and rule over the entire world's economics through a single currency? Given the current sub-prime mortgage-induced crisis in asset backed derivatives, a single global currency could be a foolhardy risk of putting all of our eggs in one basket. Economics is not an exact science and it is subject to prejudices and manipulations, so the existence of multiple credible currencies actually improves economic stability for all.

[yad99in]

A single global currency could be subject to domination by a major power. Thus, it could become the method of exerting unfair advantage over less power countries. Sure, on the face of things, it could provide the ultimate in stability for currency values, since there would be only one currency. However, it would require giving up significant freedom of maneuvering in terms of monetarist policy. That means that the central bankers could have virtual unilateral control over economic policies. Instead of being able to fine-tune national monetary supply, we could be forced to accept decisions taken by non-Americans. It would definitely put an inordinate amount of stress on guiding the single currency. There would be a constant challenge of dealing with the dynamic of the spending due to individual governmental fiscal policies, varying economic growth rates for different countries/regions and the monetary policy set by the single currency administration.

[yad99in]

In the case of the Euro, the consolidation into a single currency has not been without some
painful adjustments. The less affluent, former members of the eastern block, found that open borders and the common currency caused prices of staples to rise, because their cheaper goods flowed to consumers in the west who paid more. Prices adjusted due to the principles of supply and demand. Companies with international competitive advantages saw their business expand, while those who were unable to compete successfully contracted. The European Economic Community (EEC) did however retain tariff barriers versus the rest of the world. Thus, companies and industries which survived the "shake-out" within the EEC have had the potential of protection aginst being undercut within their markets by non-EEC suppliers. The size of the EEC markets, larger than the American market, has enabled companies within the EEC to grow stronger by developing greater economies of scale.

[yad99in]

However, the concept of a single global currency could force all companies to compete against all other companies, without any adjustment period. It could favor organizations with the global reach to take advantage of local cost advantages, such as exist currently in China and India. On the other hand, it could spell disaster for small companies that have enjoyed protected markets, due to national tariff and other trade barriers. The impact could be to accentuate the hallowing out of the American economy that has been seen with NAFTA and other free trade agreements. As with the EEC, those organizations which survive the shock of open borders and single currency tend to grow stronger, however if there is no protected home market as there was in the EEC, then economic turmoil can be dramatic and very controversial. Displaced unemployed workers could be mobilized by demagogues and spill into the streets. The greater the adjustments, the greater the pain and suffering and the greater the probability of demands for governmental policies to protect home markets.

[yad99in]

The political dynamic implicit in democratic societies should be expected to impact significantly the international trade relations of the world. Thus, even in the unlikely event that all countries of the world agreed to give up their sovereign rights to control their currencies and monetary policies, by agreeing to a single currency and some unified system for administering it, there would be the fundamental issues of national borders and trade policies. In the case of the EEC, they avoided such issues internally by agreeing to common international borders and trade policies. That was possible due to having the large EEC market protected from the rest of the world by EEC trade policies at the EEC borders. If a single global currency were adopted uniformly as the Euro was within the EEC, then how to mitigate the adjustments for the displaced and the unemployed would be a central issue. Failure to anticipate such unrest could lead to political revolutions. Regions which felt unfairly disadvantaged by a single currency might form their own common markets for their own protection against the predatory practices of multi-nationals.

[yad99in]

The corollary to a single global currency should not be ignored: single global government. Hopeless idealists will claim that all the peoples of the world will naturally agree to live in peace and avoid taking advantage of each other. However, both ancient and recent history shows that consolidation of authority leads to abuses. The elites who are protected and helped by central authorities tend to look out for their own interests to the detriment of those whose interests are not so prominently defended. Even those with disproportionate advantages tend to think they deserve even more, as seen by the actions of the American neo-cons and the Israeli Zionists in recent years. They have attempted to undermine the authority and power of the UN, by criticizing it for its failings. Granted that some of the criticism of the UN is justified. However, much of it has been propaganda in order to justify ignoring rightful criticisms of the Zionists and neo-con actions against their opponents.

[yad99in]

Thus, the issues involved in a single global currency or world government are common and intractable. It is unrealistic to expect that such developments could be successfully implemented by a single step. What is much more realistic is the idea that there could be additional economic communities created with common currencies, borders and fiscal policy coordination that would result in larger home markets with some level of protection from imports. That could allow for effective strategies for handling displaced and unemployed workers. Then, there might be careful negotiations among economic communities with the goal of freer markets as a secondary step. That could allow for the smaller and weaker economies to avoid being swollowed up in a global currency and losing their ability to speak effectively for their people. Otherwise, it should be apparent that a single step to a single currency, as with global government, would lead to incredible unrest and hardship.

[monalisa803]

The idea of a single global currency is not only feasible in our day and age, it has been effectively implemented a number of times in the past. Any numismatist - "coin collector" - can rattle off examples of currencies that functioned as global media of exchange without batting an eye.

[monalisa803]

The Athenian "owls" (Drachma) either circulated as currency or trade items throughout the ancient world, reaching as far as India, and serving as a standard of value in the civilized (i.e., Greek) world. The Tetradrachms (Four Drachma pieces) of Alexander the Great circulated everywhere with the same design for centuries after the conquerer's brief career. The Roman Denarius was the standard and model of Europe's monetary system after the reforms of Pepin and Charlemagne until the last vestige was abolished in 1970 with England's decimalization - and even then retained the old name of "pound," derived from a Roman pound of silver, divided into 240 "pennyweights." The Spanish "Piece of Eight" (8 Reales of 12-1/2 cents) was found everywhere, and was the basis for the "quasi-decimal" system of the United States. The British Sovereign of .2354 ounces of gold served as a global currency until c. 1927, when it was largely replaced by the United States dollar.

[monalisa803]

The problem is obviously not whether a single global currency could work. It already has, to all intents and purposes. The question is whether a global currency could be managed properly, without any one country or group of countries having the power or ability to manipulate things to its or their advantage and the disadvantage of others. The Prussian National Bank, which managed to seize near-total control of the finances of the Holy Roman Empire and the Confederation of the Rhine after the decline of Austria and the establishment of the Zollverein provided Bismarck with a powerful and effective means of achieving his goal of Prussian domination of a unified Germany under the Second Reich. Bismarck's manipulation of the attempts to achieve a uniform currency throughout all the Germanies meant that Prussian militarism, instead of Bavarian federalism or Austrian imperialism would set the tone for the unification of Germany, and prepare the stage for Hitler.

[monalisa803]

A uniform global currency can be a valuable tool in countering the ill effects of globalization, just as it can be used to allow a small elite or a single country to dominate others. To ensure that a global currency works properly for the benefit of all the people in the world, not just a select few, some reforms in international as well as national banking and finance are essential:

[monalisa803]

1. It is not necessary to establish a single central bank for the world. It may, in fact, be a bad idea - a monopoly on anything is rarely good. Instead, using the model provided by the central bank of the United States, the Federal Reserve System, a "regional" central bank or banks can be established for each country. All currency issued by all the regional central banks - while legally an obligation of that bank alone - would have to pass "at par" with the currencies of all other central banks, and pass everywhere without the imposition of exchange charges, surcharges, or tariffs. The United States, contrary to popular belief, does not have one uniform currency, it has thirteen separate currencies, all of which pass at par with the others. These are the issues of the twelve Federal Reserve Districts, and a special issue, discernible by red serial numbers and seals, called "United States Notes" that are required by law to be maintained in circulation, and are nominally backed by gold ... which you cannot obtain in exchange for the notes, which pass as ordinary Federal Reserve Notes, regardless what it says on the note!

[monalisa803]

2. Governments must be prohibited from being able to have their debt instruments purchased by any central bank with money created for the purpose. This allows them to circumvent the appropriations process and removes the accountability to the public inherent in any tax. This is, admittedly, the way that most currency gets into circulation these days, but it is directly contrary to the stated purpose of most central banks, even illegal - which doesn't stop governments from getting around the law. The Federal Reserve, for example, is legally prohibited from purchasing debt paper directly from the government. In order to be able to affect reserve requirements of commercial banks, however (which are legally required to hold their reserves only in the form of cash or government bonds), the Federal Reserve has to be allowed to purchase "secondary" government issues on the "open market." This means that, while the Federal Reserve cannot purchase bonds directly from the government, it can purchase bonds from traders who hold them for a microsecond or so, turning the prohibited "primary" issues into legal "secondary" issues. Most central banks manage to skirt the intent of their enabling laws in similar ways.

[monalisa803]

3. All currency and demand deposits created must only be created to purchase financially feasible loans made by commercial banks to form private sector capital, not fund government or consumer expenditures. If the commercial banks were to institute a 100% reserve requirement (similar to the "Chicago Plan" proposed in the 1930s), there would be no danger of the "multiplier effect" being manipulated by commercial banks or governments to create unbacked currency to compete with the currency or demand deposits backed by private sector assets instead of government debt.