Learn something new every day More Info... by email
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.
One of our editors will review your suggestion and make changes if warranted. Note that depending on the number of suggestions we receive, this can take anywhere from a few hours to a few days. Thank you for helping to improve wiseGEEK!