A Single World Currency?

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There’s been some renewed talk about a one-world currency over the past few weeks.

Ideally, there should be a single world currency—gold. National currencies would simply equate to a given quantity. If each dollar was worth a certain amount of gold, then more dollars couldn’t be printed unless the gold existed to back them up. Nations have abandoned this principle because it does not permit them to incur debt and devalue their currencies easily. We used to associate devaluation with the developing world, but no more. Governments in the U.S., Europe, Japan, and elsewhere have incurred massive debts while their economies are stymied. Guided by flawed Keynesian thinking, they want to spend even more to “jumpstart the economy,” but their debt levels are already too great at the present currency values. Devaluing the currency enables these governments to keep on spending while potentially boosting exports, providing that their trading partners don’t do the same. When other countries threaten to respond in kind, we can have a currency war.

This is an economic advantage to a single world currency, improved efficiency. Companies could trade across borders without concern for abrupt changes in exchange rates. Individuals could travel freely without the hassle or expense of exchanging currencies. There is a political advantage as well. With a single world currency, individual nations could not manipulate the value of their own currencies.

However, the disadvantages of such a policy are substantial in both economic and political terms. On the economic side, weak economies benefit at the expense of stronger ones when there is a common currency. In the event of a crisis, nations with stronger economies will be called on to subsidize the recovery of those in trouble, as we have seen with Greece and the euro. Likewise, if central banks drive interest rates, this becomes quite complicated because of different economic situations across borders. Central banks shouldn’t be driving interest rates in the first place, but that’s another story.

A common currency would be a political disaster. Central economic planning at the national level is egregious in its own right, but even worse at a global level. Regulators from various nations would meet to negotiate expansion of the money supply. Who gets to print and spend new currency would become a political challenge, replete with calls for “global equity” and wealth redistribution. Individual nations would relinquish control over the most central component of exchange, money. There is no economic advantage for countries like the U.S. with relatively strong currencies to participate in such a collective effort.

A global currency would also bring about opportunities for devaluations at the global level. Devaluation is an inherent tax on wealth because it leads to price influence, meaning that each unit of currency held by a company or individual declines in value. With massive government debt burdens, many leaders would welcome a global devaluation and accompanying inflation; the printing of money designed to bring about this devaluation would give governments more to spend. If there is a single world currency, then accumulated wealth—including your 401(k)—could be decimated by the action of a politically-motivated global bureaucrat. 

The chatter about global currency regulation and ultimately a single world currency is built on a combination of Keynesian economics and pure Marxism. Rather than address debt problems within one’s own country by pursuing fiscally sound economic principles, world leaders find comfort in a collective solution that appears to provide an easy way out. But collectivism always fails in the long term. It might offer some immediate benefits to the weak, but never to the strong.

Make no mistake…the efficiencies gained by a global currency pale in comparison to the economic and political costs. Unfortunately, Tim Geithner is on record as being “open” to discussions on the idea of collective regulation of global currencies. This is a scary thought. More central economic planning, especially at the global level, will only make things worse. Instead, we should get our own economic house in order and insist on fiscal accountability in Congress.

3 Comments

3 Comments

  1. proud&conservative1984  •  Oct 7, 2010 @3:38 PM

    I heard you and Wilkow talking about this today. It’s amazing that even the democrats wouldn’t oppose this flat out. It’s just common sense.

  2. jerry  •  Oct 7, 2010 @6:29 PM

    theres no such thing as common sense to a democrat

  3. CC  •  Oct 9, 2010 @8:45 AM

    I am from China and I am living in America for 7 years. What you say is true. A trade war will hurt everyone, but it will hurt China more. In my opinion, Premier Wen Jaibao admitted that he said that a faster rise in RMB would cause social unrest in China. He also said that profit margins were very small. China must undervalue the RMB to grow its industry. A stronger RMB might help the US some ways, but it will hurt China.