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Many arguments exist both for and against the establishment of a single world currency. Arguments for such a world currency unit include increased ease of international trade, decreased dependence on the US Dollar (USD) and economy with its large deficit, and potential protection against regional shifts or variations in economic stability. Arguments against one world currency include political and religious differences, lack of financial benefit, and interest rate difficulties with the redistribution of wealth.
In an increasingly globalized market, currency mobility is greater than ever. Some economists believe that this could encourage countries to more readily support a single world currency if they believed in its stability. Others, however, believe that the globalized market is allowing for more competition in regard to currency, allowing different currencies to compete. Both options carry potential benefits and risks, further fueling the debate on the advantages and disadvantages of a single world currency.
Study of optimal currency areas have led to some arguments in favor of a worldwide currency. According to optimal currency area research, places with geographic and capital mobility, a high level of trade, and similar business cycles can be areas that would greatly benefit from a single currency. Benefits could include reduced transaction costs, increased trade facility, and increased trust of money.
Study of optimal currency areas, however, proves that the globe is not an optimal currency area. Not all countries are considered economically incompatible and might not benefit from a global currency. Additional potential problems include political strife, war, and religious differences, with the lack of usury payment in Islamic tradition being one such difference. Even within existing areas bound by a single currency, such as the European Union or the United States, problems have been documented with existing systems.
Decreasing the dominance of the USD as a reserve currency is another argument propelling discussion and desire for the generation of a single world currency. Depending on a currency from a country operating on such a large deficit can cause high volatility in exchange rates internationally for currencies still pegged on the dollar or dependent on its success. As the largest reserve currency, problems with the U.S. economy, such as inflation, can also cause problems for economies across the globe.
Assuming the creation of a world currency would lead to a central bank, additional difficulties include interest rate establishment and the question of who would retain authority over the bank. A world currency might try to calculate interest rates by juxtaposing the richest countries with the poorest in the world, compromising the central bank’s ability to increase prosperity or generate acceptable rates. Authority over the central bank would also be a politically sensitive issue and could decrease the trust that member countries had in the bank if their views were unrepresented.
World political (in)stability is such that I don't think one world currency could stand up to the fluctuations. If every country in the world voted to use the same currency (like Zimbabwe uses the US dollar), that would be one thing, but it would have to be a decision of the people, and even then, I doubt you could get them to agree on one currency. Some would want the dollar, some the Euro, and some might want German Deutschmarks! You just never know.
Unless it's a completely voluntary move by the country's residents, I don't see a one world currency working too well.
I don't think it's a particularly good idea. It hasn't worked that well for the European Union. Most of the EU countries want to go back to their previous currencies, and I think England uses both the pound sterling and the Euro pretty much interchangeably, but I could be wrong.
A better idea might be to call the Euro and the US dollar the "universal" currency, which means they would be taken everywhere, regardless of the local currency. I know some countries already do this, and it makes life much easier for tourists, no matter where they are from. It would also make it more difficult for naive tourists to be cheated in money exchanges.
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