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Different countries have different economies. They also value their goods and services at different rates and create their own currencies used for trade within their borders.
But when one nation trades goods and services with another, they must first exchange currencies. Foreign exchange is complex, and one proposed method to simplify it is with a one world currency.
What is One World Currency?
A one world currency, or global currency, is a hypothetical single global currency that a global, central bank produces, supports, and backs for all transactions and businesses across the globe.
With this hypothetical currency, all nations, individuals, governments, businesses, and corporations would trade with the same money. Currency exchanges would be a thing of the past. However, a global currency is only an idea that is unlikely to come to fruition in the foreseeable future.
John Maynard Keynes, a renowned economist and global currency advocate, suggests that one of the causes of inflation and economic disasters is the differences in various currencies throughout the globe. He believes that a global currency could solve this.
A one world currency would make international transactions easier and more efficient since international transactions would no longer require currency exchanges. Foreign direct investments (FDI), or cross-border investments, could also improve through the use of a global currency.
One World Currency History
The concept of a world currency is not new. In fact, the idea has been around for centuries. You might be surprised to learn that global currencies were
As the Spanish established trade routes and political footholds throughout the world during the 17th and 18th centuries, so did their currency. Spanish silver dollars, also known as eight-real coins or “pieces of eight,” were widespread and popular in most corners of the developed worlds.
The use of the Spanish silver dollar extended from Spanish territories in Europe and then to Asia, becoming the first global currency.
The Spanish dollar was generally accepted in all of Spain’s Pacific territories, including Guam, Micronesia, and the Philippines. After a while, it became legal tender in southeast Asian countries and China until the mid-19th century.
The Spanish dollar was also used as legal tender in the Americas – in Central America, South America (excluding Brazil), Canada, and the United States until the early to mid 19th century.
The Spanish silver dollar dropped off in use and prominence as each nation developed their own currencies and the means to produce them.
The influence and dominance of the Spanish dollar were so significant that you could trace the Canadian dollar, US dollar, and Mexican peso’s origin back to the Spanish dollar.
Gold, being a precious metal, has always been an ancient means of exchange and store of value. It doesn’t tarnish or degrade; it is easily melted and formed into bars and coins.
Gold is rare, but not so rare that countries cannot mine it in substantial quantities. It is also easy to identify through scratch tests and other means, making it difficult to counterfeit.
Because of its desirable properties, gold has been used as a trading method for thousands of years. Many countries adopted a gold standard in the 18th and 19th centuries, backing their currency with physical gold.
Many assert gold as the first truly global currency due to the fact that many nations’ currencies were backed by gold. However, many countries had gold coins of different weights and purities, so transacting between nations was not as easy as it sounds.
The gold standard was prominent from the 1870s and mostly came to an end when World War I started in 1914.
Most nations abandoned the gold standard system due to several restrictions it imposed on the government and its inclination for volatility. The gold standard system indeed had a severe impact on global trade.
The euro is the currency used by most countries in the European Union. The euro currency entered the financial market in 1999 and is now (in 2021) the second-largest and second-most traded currency in the world (behind the U.S. dollar).
You can think of the euro as a “mini” global currency since many countries within the European Union use it as a means of exchange between each other.
In 1969, the International Monetary Fund (IMF) established the Special Drawing Rights (SDR), an international currency. The SDR value is a basket of five currencies: Japanese yen, U.S. dollar, euro, Chinese renminbi, and British pound sterling.
The SDR is essentially a fiat currency that contains a fixed percentage of five other currencies. However, SDRs are not a real currency, nor are they a global currency.
The IMF issues SDRs, and regular citizens cannot use them. Only governments and global organizations like the UN and World Bank can use SDRs in international trade.
IMF’s Articles of Agreement explicitly stated that SDR was established to be the primary reserves asset in the global monetary system.
Advantages of a One World Currency
One thing is for sure; a world currency could benefit many countries while potentially harming others.
A global currency could eliminate currency risk in international trading. International traders won’t have to teeter their positions in concern of currency fluctuations.
Here are some advantages of a global currency.
Elimination of Conversion Costs
A world currency would eliminate transaction costs associated with international trading and finance. Trading internationally and exchanging currencies comes with conversion charges from banks.
Also, the conversion of one currency to another can result in a loss in value. A global currency would eliminate these charges and loss in value. Businesses operating in other countries would greatly benefit from this reduction in fees.
A one world currency would break down the currency barrier that exists between nations. By breaking down currency barriers, international trade among countries will increase significantly.
For example, countries in the European Union attested that adopting the euro has increased their trades by 5% – 20% amongst nations in the European Union. Imagine what could happen if there was one global currency?
Additionally, a one world currency would also establish a leveled global playing field in the international market. Countries like China would no longer be able to undervalue their currency to make its export price cheaper across the globe.
The economies of many countries have been impacts by monetary policies similar to that of China’s exchange. With a global currency, no single nation could undervalue the currency.
A global currency would greatly benefit developing countries as it is bound to form a basis for future economic development. This could boost the economies of many developing countries.
For instance, Zimbabwe suffered one of the worst hyperinflations in history, which rendered their currency useless. The Zimbabwean dollar had to be replaced by the US dollar and other foreign currencies to bring about stability in the country. A global currency is bound to prevent hyperinflationary periods.
Disadvantages of a One World Currency
An obvious disadvantage of a global currency would be the loss of the independent monetary policy.
Here’s one example of why– during the economic crises of the United States in 2008, the Federal Reserve was able to implement a unique solution with quantitative easing.
To increase economic growth, the Federal Reserves lowered the interest rate while increasing the money in circulation. This action helped to reduce the harshness of the United States’ recession.
With a global currency, this kind of fierce economic management would not be possible. Monetary policies would not legislate on a nation-by-nation basis. Instead, any change or modification in the monetary policy happens on a global level.
A global monetary policy doesn’t hold water to most developed nations. Despite the worldwide nature of commerce, the economies of every country across the globe still differ considerably.
Subjecting all nations to a single monetary policy would only lead to policy outcomes that would favor some countries at the expense of others.
There’s no doubt that a single currency market would benefit some nations of the world. Sadly, the forex market would have to end. Without multiple currencies, there won’t be a need for the foreign exchange market.
This would increase the level of unemployment across the globe. A redundant industry equals redundant individuals. Considering how massive the foreign exchange market is, the level of unemployment would be substantial.
Why Isn’t There a One World Currency?
The value of money (fiat currency) depends on one thing – the amount of money in circulation (that the government deems fit to print).
If the government prints more money, then their overall value goes down. Conversely, if they remove money from circulation, the value of money goes up.
Therefore, if the world is to adopt a global fiat currency, there would be a need for a central authority that would be in charge of printing money and deciding the quantity to be printed.
However, there would be a disagreement between many nations on the monetary policies that the global fiat currency should pursue. This makes having a global currency impossible and is the same reason we don’t have a global government – nations disagree and want different things.
The euro illustrates the exact problem the world would face if we had a global currency. Fiat currency is preferred worldwide because every country can print as much money as possible to pay their debts rather than raising taxes.
By paying debts with the extra money they printed, a government can use this loophole to pay their creditors without technically defaulting.
For example, let’s consider the case of the euro and Greece’s debt. Being a European Union member nation, Greece could print more euros to pay its debt.
However, they can’t decide to print more euros on their own; only the European Central Bank (ECB) has the power to do that. And before the ECB can print money, it must be voted by all member countries.
Most of these other EU countries don’t want to devalue their currency, so they vote “no,” leaving Greece to fend for itself, default on its debts, or leave the EU.
It’s quite glaring that it’s impossible to have a one world currency across the globe.
What’s the Difference Between a Global Currency, SDR, and a One World Currency?
One world currency or a global currency is a hypothetical single currency produced for use in all transactions and businesses across the globe.
On the other hand, the SDR is a basket of five currencies which include; Japanese yen, U.S dollar, euro, Chinese renminbi, and British pound sterling. SDR was established to be the primary reserves asset in the global monetary system and is not a global (one world) currency.
While both the SDR and one world currency share objectives, the primary difference is that the SDR uses a combination of five nations’ currencies. Plus, only global organizations (UN, IMF, etc.) and governments can use SDRs.
Conversely, the one-world currency ideology proposes just a single currency used by everyone, including governments, citizens, etc.