Overview the Debate About Currencies Is Not New; It Has Existed for Over 2500 Years Ever

Overview
The debate about currencies is not new; it has existed for over 2500 years
ever since the barter system took concrete shape. But there is a
difference today, and the debate is more sharply polarized between two
schools of thought. One comprises those who are convinced that our global
economy, characterized as it is by multiple currencies, is out of
synchronization with a globalized world. They believe that it is time to
move over to a single global currency system. The other school of thought
is downright skeptical about the feasibility of a single global currency
because that would mean abdicating monetary nationalism. And in parts of
the world where national and political fervour have started bordering on
jingoism, the proposition of currency unification seems to be a remote
possibility. The ongoing debate has been a long drawn out one, because the
dilemma is not always evident and it resurfaces from time to time,
remaining dormant during other periods.
Currently, with daily currency trading at over USD 3 trillion, the issue
has once again resurfaced. The magnitude and complexity of the problem can
be easily gauged when one realizes that today there are 147 currencies in
vogue among the 191 United Nations members. Not only does this hike costs
of foreign exchange transactions, it leads to the need for large scale
hedging, resulting in balance of payments crises, inflation, currency
crises from large scale and sudden flight of capital and other adverse
effects. This book captures the essence of this dilemma and debate and
focuses not just on the positive aspect of currency unification but on
these varying viewpoints these that endorse currency unification and those
that oppose it-to enable readers to make informed judgments on the issue
and arrive at their own conclusions.
Another important aspect of the debate is that since the US dollar
functions almost as a surrogate global currency (with the Euro offering it
stiff competition on the global turf), is there a need for a single global
currency ? Or, would it be redundant? To decide, one needs to ask a
question: Does the dollar fit the bill of a single global currency? In
other words, does it possess the characteristics a single global currency
needs to have? Here, a fact that should be remembered is that ideally, a
single global currency should have a shared governance, with all the
member countries being rightfully and legally able to claim it as their
own. There has been absolutely no indication of this shared governance
over the US dollar, ever. Second, there are many who are convinced it is
just a matter of time before the US' large current account deficit creates
a widespread crisis of confidence in the dollar and displaces it from its
position of supremacy. Also, though the dollar is the prime reserve
currency, it is not considered as a legal tender anywhere but in the USA
and in countries that have gone in for dollarization. Unless this status
undergoes a change, the dollar cannot be considered as a the single global
currency. This is why there is a need for a single global currency that
has all these features and more-be it the dollar, the Euro, the proposed
Dey, the Geo, or the Phoenix.
What is actually envisaged by advocates of a single global currency is a
3-G world, as stated by Morrison Bonpasse, the first president of the
Single Global Currency Association. It comprises a Global Monetary Union,
a Global Central Bank, and a Single Global Currency. This view has almost
been mirrored in an observation made by Paul Volcker, former Governor of
the US Federal Reserve, who said: "A new mechanism was needed for the
world financial system.. and in a globalised world, we should have an
international currency." It was yet again endorsed by the Bank of
International Settlements (BIS). With such eminent proponents advocating a
single global currency, the concept has since moved centrestage.
The highlight of this book is Morison Bonpasse's highly comprehensive and
analytical article, "The Single Global Currency: Origin, Benefits and
Costs." Here, he analyzes the implications and advantages of the single
global currency from every conceivable angle.
A major comfort factor for those who favour currency unification
initiatives that are on the anvil is that currency unification in some
form or the other has precedents to go by, and these are not just in the
Eurozone. Fifty countries use multinational currencies like the US dollar,
the Australian dollar or the Euro which is a monetary union currency.
Apart from the Eurozone, we have precedents of monetary union currency in
the eight member Eastern Caribbean Monetary Union, the eight member
Western African Monetary Union and the six member Central African Monetary
Community. There may yet be other instances by 2010, when the
implementation of the Gulf Cooperation Council Monetary Union for six Gulf
countries might result in at least 57 countries reverting to the
multinational currency. To what extent are the monetary union currencies
relevant to a single global currency? Most moderates feel that the concept
of multicurrency regions through monetary unions is a first step towards
the single global currency better known as 3-G.
The advent of the Euro has helped the single currency concept resurface
with vigour-and there is no doubt that the regional currency blocs would
lay down precedents about the feasibility of a single global currency. The
final aim is worth pursuing because of the numerous 3-G objectives. The
3-G will (1) Eliminate wild forex market fluctuations and unhealthy market
manipulation (2) Eliminate the risks arising out of excessive capital
flows in and out of countries leading to currency crises and recession (3)
Eliminate the cost of forex transactions, etc.
The book also presents contrarian viewpoints about the costs and
disadvantages of monetary unions and a single, global currency. It
analyzes the pre-requisites for currency unification and concludes whether
the progress towards 3-G will stop at three or four regional currency
blocs, at best. The question of political consensus is the prime factor
that leads to a successful currency unification and is therefore discussed
in various contexts. Other highlights of the book are the Eurozone and the
Caribbean currency unification experience, the Pacific Island country
initiatives, efforts towards currency unification in Asia, the impact of a
common Asian currency on international trade, currency unification
initiatives in Africa, and elsewhere.
The focus here is therefore on the worldwide, contemporary need for a
single currency, the economic benefits of such a scenario, the challenges
and disadvantages of the changeover, the conduciveness of the current
political climate to bring about such a change, an in-depth analysis of
the regional currency blocs or monetary unions to gauge the feasibility of
the single currency and its impact after implementation. It also projects
the viewpoints of BIS, UNO and other globally recognized institutions and
other crucial issues.
The main objective of the book is to attempt to give concrete shape-for
the first time-to the global debate about the feasibility of having a
single currency which has been raging at various fora for the past decade
and especially after the advent of the Euro.
It also aims at analyzing the regional currency blocs that have come up or
are due to come up and evaluate the success of these monetary unions to
gauge the future of a single global currency.
The book addresses the crucial issue that has been debated in the
international fora for quite some time now, but has resurfaced with vigour
after the advent of the Euro. With eminent economists and organizations
such as the BIS endorsing it, it has emerged as a matter of serious
debate, and the book attempts to contribute in a substantial manner to
this debate having a worldwide significance.
The book is divided into two sections: Section I A Single Global Currency:
A 360 Degree Perspective and Section II Regional Currency Blocs:
Experiences and Future Possibilities. The first section analyzes the
feasibility of having a single currency after the advent of the Euro. It
explores, market reactions and the macroeconomic effects of the single
global currency besides its advantages and disadvantages. Also,
perceptions against the currency unification and critical thoughts on
single currency are highlighted.
The second section portrays the regional currency blocs which have come
up/or are due to come up and analyzes the success of these monetary unions
to gauge the future of a single global currency against this backdrop. The
articles trace the experiences of regional monetary unions such as
European, Asian, African, and Pacific Island countries. The section
explores the possibility of implementation of a common currency with
regard to the triumph of European integration and possible impacts the
regional currency integration can make.
Section I: A Single Global Currency: A 360 Degree Perspective
A single global currency is not a new phenomenon; it has existed for over
2500 years ever since the barter system took shape. A single global
currency is nothing but a common currency, managed by a global central
bank within a global monetary union, facilitating all trade transactions
at the global level. A common currency for the world could be the answer
to many issues solving currency fluctuations, problems related to foreign
reserves, economic shocks, inflations etc. The section focuses on the
worldwide, contemporary need for a single global currency, the economic
benefits of such a scenario, the challenges and disadvantages of the
changeover and the conduciveness of the current political climate to
bringing about such a change. The viewpoints of BIS and other globally
recognized institutions on this matter have been briefed. It also analyses
the reasons for the failure of single global currency.
The first article "The End of National Currency" authored by Benn Steil
says that globalization and monetary nationalism (leading to multi
currencies) is a dangerous combination, a cause of financial crises and
geopolitical tension and has sparked a surge in monetary nationalism. The
author cites the case of Argentina which has become the poster child for
monetary nationalists who believe that every country should have its own
paper currency and not waste resources hoarding gold or other hard
currency reserves. The article enumerates the merits of currency
unification as in the days of gold-based globalization. A box item by
Jayshree Bose, "Some Pre-requisites for the Path to Currency
Unifications", supplements on the issue.
"The Single Global Currency: Origin, Benefits and Costs", the second
article is by Morrison Bonpasse, which defines "Single Global Currency
(SGC)" as a common currency, managed by a global central bank within a
global monetary union, that people can use within the member-countries as
legal tender and for international transactions. The author details the
advantages arising out of an SGC and the origin of the single global
currency. The benefits and costs of the global monetary union/single
global currency are also analyzed.
The next article "Exchange Rate Arrangements and Disarrangements:
Prospects for a World Currency" by Sergio L Schmukler evaluates the
prospects for a world currency and argues that a world currency is
unlikely in the foreseeable future and probably undesirable. The author
says that in the current climate, it is more likely that regional currency
blocs would emerge, in to a single global currency. The article then
illustrates with examples, how countries try to adjust to negative shocks
and how even currency arrangements that appear very rigid become
unsustainable and tend to disintegrate. The article concludes that
developed countries are unlikely to enter into an arrangement for currency
unification with underdeveloped or developing countries.
The fourth article "One World Money, Then and Now" by Michael Bordo and
Harold James traces the undulating acceptability of currency unification
over a prolonged period of time and states that there is an immediate
appeal about the idea of a single world currency and refers to the unfair
prices at which currency is exchanged. The authors point out that emerging
economies may experience inflation, as prices of goods and services rise,
nudged along by the increased incomes traders in such countries derive
from selling. Mature markets may face deflation arising out of competition
from the developing economies that drive down prices. It concludes that
moves to world currency would lead to restrictions on world trade and the
system would be better off with adjustment mechanisms through exchange
rates. There is a box item on "Currency Crises" by Jayshree Bose.
The article "Critical Thoughts on a Single Currency" authored by Carl
Teichrib quotes a number of well-known economists, most of whom say that
currency unification could come sooner than expected, and that a multitude
of global currencies were not in sync with globalization. Monetary
sovereignty can be expunged by the world regrouping itself into three
regional monetary units: The dollar, the Euro and an Asian currency.
Robert Mundell had advised a similar grouping-based on the dollar, the
Euro and the Yen. The conclusion indicates that today the idea of a single
global currency is gaining traction through organizations like the SGCA
and has gained momentum after the Bank for International Settlements has
publicly considered the potential for a one world currency built around
regional groupings. The box item by Jayshree Bose, "The Bank for
International Settlements (BIS) on the Single Global Currency", is another
focus on the issue.
There are a number of reasons for gold being considered the best choice
for a global currency. One, its ownership can now be traded and exchanged
and transferred instantly, legally, and efficiently by the click of a
mouse. The article "A Single Global Currency? Why not? But only if it's
Gold and Silver Bullion!" by Alex Wallenwein highlights the advantages of
a global bullion weight system. The four cardinal rules of a private
bullion weight standard are stated and these should be met for this system
to work properly. The article also deals with some drawbacks due to usage
of Gold. It concludes that a bullion-weight standard, once established in
the minds of the population at large, is the single most effective bulwark
against future official subversion and debauchment of the monetary unit
The seventh article "Single World Currency: Macroeconomic Ramifications
and Financial Market Aftermath" by Keerti Mallela focuses on the market
reactions and the macroeconomic effects of a single global currency. The
author explains that there would be no currency crises, no reserves of
foreign assets and no balance of payment problems with the currency
unification. An idyllic world and an idyllic single global currency has
been the centre of discussion long enough. Elimination of currency trading
costs, lesser investment risks and other advantages of a single world
currency seem to have been noticed from the implementation of the Euro as
a common currency at the beginning of this decade. At the end, the
structuring of monetary policies in each economy as a stark apprehension
is also noticed.
The last article of the section "The Single Global Currency World - In
2024?" authored by Morrison Bonpasse provides an insight into the
governing structure of the Global Monetary Union - Global Central Bank.
The governing structure of the GCB should be relatively easy to design,
given the available, successful models of the US Federal Reserve, the
European Central Bank, the International Monetary Fund, the World Bank and
the United Nations. The author lists the duties and operations of GCB. The
author ponders on what the name of the SGC should be. The article further
talks about issues such as the role of gold, inflation, prices, interest
rates and credit availability, war and peace within a monetary union,
etc., in the context of SGC. In the last part, the effects on the
financial markets due to the adoption of single global currency are
elucidated. There is a box item about "A Failed Unified Currency System:
The Reversal Route" by Jayshree Bose.
Section II: Regional Currency Blocs: Experiences and Future Possibilities
The section showcases various experiences that look at the prerequisites
of currency unification-a fair level of homogeneity with regard to
inflation, GDP growth, intra-regional trade, political consensus,
willingness to submerge national currencies, as well as the other factors
that must be present in the countries going in for a unified currency. It
analyzes the difficulties faced by the regional currency blocs and the
even more formidable obstacles to a global currency and suggests antidotes
to overcome them.
Euro, since its inception, has been a monetary marvel and a symbol of the
triumph of European integration. Euro, as a currency, has lent
macroeconomic solidity and political clout to the entire region, has not
only strengthened but also challenged the hegemony of the dollar. The
first article in this section "Euro @ Ten: A Feat or a Defeat?" authored
by Y Bala Bharathi and Sanjoy De depicts how EMU has ended the internal
currency turbulence within the euro area and made Europe more resilient to
outside shocks. The article highlights the shortcomings of Euro despite
triumphs such as, the sharp divergences across the countries in terms of
inflation and unit labour costs, which has resulted in weakening
competitiveness etc. Future agendas such as the overall macroeconomic and
financial stability, well-functioning labour markets, greater flexibility
in wages across the industries and the more active and assertive role in
taking the common currency on to the global stage have been discussed.
"Looking Ahead: The Single Global Currency", is presented as a box item by
Jayshree Bose.
The second article "The Misguided Dream of Asian Monetary Union" by Barry
Eichengreen explains, why creating an Asian monetary union or a single
Asian currency is a complex process. It is indicated that the objective of
bringing in monetary unification in the form of an AMU is largely due to
the hangover of the 1997 SE Asian crisis when a point that was driven home
was that local currencies were too small to cope with the international
markets. The reasons why an AMU is desirable are listed. The ways to
fulfil the objectives are suggested. But attempting to establish a system
of regional currency pegs as the first step towards an eventual Asian
monetary union is impractical on both political and financial grounds.
Asian countries are recommended to engage themselves in harmonized
inflation targeting while investing in the development of hedging markets
in which banks and firms can protect themselves against the exchange rate
uncertainty and financial risks.
"Common Asian Currency and its Impact on International Trade" by Sukhada
Waknis explores the possibility of implementation of a common currency for
Asia by 2050, the role that INR can play in the process and the impact of
the currency unification on regional trade. The author elaborates the
adoption of the Asian Currency Unit and measures needed to be taken to
tackle currency mismatch problems, gaining political acceptability and the
solutions resolving these issues.
The article "Currency Unification in the Pacific Island Countries: Some
Suitability Issues" authored by Jayshree Bose examines the benefits as
well as the disadvantages of a unified currency system which is sought to
be shared by Fiji, Papua New Guinea, Tonga, Vanuatu, Tonga, Samoa and
Solomon Islands, the six Pacific Island countries. The article outlines
various Acts passed in 2002 and 2003 which furthered this cause of
currency unification and the Pacific Plan enacted in 2005. It examines the
viability of implementing a common currency in the Pacific Island
countries in the light of factors such as historic and economic factors,
maintaining inflation control, financial integration and investment etc.
It concludes that there is no perfect exchange rate strategy. The decision
to go in for a single regional currency or otherwise would rest on a
strong commitment to regional cooperation and political consensus, apart
from adequate economic homogeneity.
The fifth article "How Viable is a Single Caribbean Currency?" by Al
Edwards examines the opinions on single Caribbean currency. Some say that
the effectiveness of the Caribbean Single Market and Economy (CSML) lies
with the implementation of a single Caribbean currency. The Committee of
Caricom Ministers of Finance has recommended the monetary union with a
common currency to replace the existing national currencies administered
by The Caribbean Monetary Authority (CMA). The article finally states that
national macroeconomic assessments by some members are still pending, and
receipt of these would provide the Caricom Committee the basis for
launching a single currency.
The last article "A Single Currency for Africa - Reality or Dream?" by
Parvatham N analyzes briefly the current economic status and monetary
trends of the African countries. It highlights the need for a single
African currency. The goal of a common African currency has long been
considered to be a pillar of African unity, a symbol of the strength that
its backers hope will emerge from efforts to integrate the continent. The
article focuses on the longest surviving monetary unions - eight member
West African Economic and Monetary Union and six member Economic and
Monetary Community for Central Africa (CAEMU). The conclusion looks at the
challenges faced and steps taken to counter the issues and the future of
the single African currency.
This book would be of great interest to governments, central banks of
countries, economists, political, economic and trade blocs, banks,
corporate and bank treasury managers, players in the forex markets,
students working on forex-related projects, faculty and students of
finance and management, etc.