There is a heavy degree of interdependence among the world's financial markets. The fragile nature and the interdependence of the international financial systems were demonstrated by the recent global financial crisis that hit the world beginning the year 2007. Although many countries were insulated from the effects of the economic crisis, the financial crisis had a domino effect on world financial market because the crisis spread in many regions worldwide. The rapid spread of the global financial crisis shows the integration of the global financial markets. It also shows the reasons why there is a need for more cooperation to ensure the proper functioning of the financial markets between and among world nations (Bahai Inc, 1999).
One way proposed of making the international financial markets became more integrated and interdependent is the adoption of a universal single currency to be used as a means of exchange for all the nations in the world. A uniform and universal single currency is one of the measures that can facilitate greater cooperation and understanding between nations across the world on financial issues and not just as a means of exchange (Edmund & Marthinsen, 2004). This paper evaluates the impacts the adoption of a single universal currency can have on global trade and global investments. The paper utilizes the adoption of the euro by countries in Europe as a model that can be used as a benchmark for adoption of a universal currency by nations in the world. The paper concludes by exploring how the adoption of a single universal currency can be an attainable goal by nations around the world.
The adoption of a single universal currency by the nations around the world presents world nations and the global economy with both challenges and opportunities. A single universal currency can function as a world language therefore improving the nature of communication around the world. A single global currency can eliminate the problems of speculation, instability and the lack of certainty that clouds the international money markets. This would therefore provide a good foundation for growing economy. A single world currency can also decrease the cost and the risk of doing business in the international market (IMF, 2000).
A single universal currency can also be an important step of the promotion of economic justice in the world. This is possible because a single universal currency can eliminate the selective advantage of a few wealthy and economically favored nations whose currency is regarded as more secure and stronger and prevent the poor nations from the effects of currency fluctuations. This impact of a single world currency can in the end counter the effects of economic globalization by creating a level economic foiled for all nations to carry out international trade. It would also eliminate the problem of the regional currency crisis (Hanke, 2010).
This idea of a single world currency is not very new. In fact, gold was used as a standard currency world reserve by many nations around the world in the eighteenth and parts of the twentieth century. Many nations around the world were welcoming of the idea of a world currency in the 1940s but the idea watered down with the founding of the International Monetary Fund and the World Bank. Under the present system of having many currencies in the global economy, investors trade in currencies and ensure that they obtain the best returns of their investments for the least risk. Many forex trading professionals predict and insulate themselves from any adverse effects in exchange rates and this leads to speculation for the value of currencies in the international financial markets. The speculative nature of forex trade results in fluctuations in currency values. A single world currency can eliminate this speculation of currency value (Murinde & Mullinex, 2003).
Governments also frequently introduce measures to protect their own currencies from severe exchange rates. However, the major currency crisis of today can overwhelm a countries national reserve and make it require international assistance that requires the investments of huge amounts of money. This psychological perspective is very important in determination of exchange rates of currencies since the exchange rate is mostly determined by the confidence of investors for a particular currency, the exchange rates fluctuate much because confidence in currencies is easily shaken by global events and it is also not easily restored . In this case a, single world currency can eliminate this problem of speculation in world currencies and provide a platform for global confidence in currency (Bruce & Scott 2001).
There are many objections raised to the adoption of a single world currency in the world. One objection is that a single universal currency can impose some economic rigidity on all countries in the world and force them to face some economic consequences. However, a unified single world currency can reduce the impacts outside forces have on currency fluctuations. The other objection raised concerning the introduction of a single world currency is the fact that the leveling power the single universal currency has over the international trade is the fact that the process can cause unemployment in certain regions. This arises because it would be impossible to eliminate the selective advantage some nations have in producing certain goods or providing certain services (Stack Inc 2010). The fact that a level economic playing field can make jobs to divert from one country to another leads to opposition of the introduction of a single currency in the world.
The adoption of a single world currency also presents the opportunity of uniting the world and eliminating the bureaucracies and powerful interests that surround the trade in international trade. However, a national currency represents its sovereignty ands these symbols cannot be given that easily by the nations around the world. The currency of a nation serves many purposes like being a symbol of the strength of a countries economy and the strength of the political and social cultural institutions (Schoen, 2009).
A single universal world currency presents the world with many advantages than the current system of over 190 currencies circulating around the world. For example, a single world currency can ensure that there is a more openness and transparency in the global trade and investment. This is possible because if the prices of commodities and services are priced based on a common currency, then it is very easy to determine if there are overcharges in the pricing of goods or services. A single world currency also promises the opportunity of making the prices of commodities and services around the world to converge as it makes the process of price comparison easier. The fact that a single world currency also promises the elimination of fluctuations in exchange rate of currencies promises that the prices of commodities around the world would drop because the prices need not adjust prices to reflect the changes in exchange rates (Murinde & Mullinex 2003).
The introduction of a global single currency can also lead to simplification and ease in the process of carrying out global trade and global investments. With the existence of a single global currency, traders in the global economy do not have to worry about hedging exchange rate or a drop in exchange rate related fluctuations in prices. They also do not have to worry about the wastage of time for exchange of currencies in global trade. A single global currency can also result in abolition of protectionist tariffs because it would become easier to determine the prices of commodities (Schoen, 2009).
However, a single world currency also presents problems to the world. For example, it would make nations around the world unable to fight debt and recession effectively. This is because countries around the world deflate from debt through adjustment of currency prices like lowering of exchange rates or carrying out savage cuts to handle debt effectively. Adjustment of currency prices is not possible under a universal global currency because the value of the universal currency would be exogenously determined (Bruce & Scott, 2001).
Global economies also benefit more from having many currencies rather than a single currency furthermore; the existence of forex trade makes it possible for nations to change a currency from one currency into the other. The competitive advantage that many currencies have over other currencies is very essential for the national economies of some countries and it is very unlikely that countries can give this advantage so as gain from the benefits of a single currency (IMF, 2000).
A single world currency can also lead many nations around the world into the trap of accumulating debts. For example, even when nations around the world maintain good monetary controls of their fiscal policy, and they use the universal currency when the value of the universal currency falls, the nations can be sucked up by the fall in the value of universal currency despite maintaining a good fiscal policy (Edmunds & Marthinsen 2004). This can lead to a fall in volume of trade and investment even for a nation with a good fiscal policy.
Another challenge that the introduction of a universal currency presents to the world is the difficulty in determining the interest rates of the universal single currency. Under the present systems of many currencies around the world, each nation sets the value of its currency to control inflation and the interest's rates. The act of coordinating interest rates across many nations around the world each experiencing its own economic situations is a difficult task. A single world currency would also eliminate the huge volumes of global trade and the huge volumes associated with the trading in currency would end. The speculation associated with global trade is associated with global trade in currency would also end resulting in stability in trading conditions and environment in the world economy (Bahia Inc, 1999).
The adoption of a single world currency has many implications on the competitiveness of the global economy. Under the current system of each nation having its own currency, there is healthy competition between nations of the world as each tries to strengthen its currency against other currencies in the world to benefit in trade and in selective advantage. This competition allows businesspersons and citizens to oppose the fiscal policies of the government if they are against the well-being of a nation or the countries business environment. The adoption of a single world currency eliminates this debate, the alternatives and the choices a country have about making its own fiscal policies. The adoption of a single world currency therefore empowers the government in making its fiscal policies and eliminates the power from the citizens of checking or opposing the fiscal policies of the government (Bonpasse, 2006)
The many currencies present in the world are also valued according to the trade flows, this means that countries that are more productive enjoy generally strengthened value of their currencies against other currencies and therefore enjoy more purchasing power because they are able to buy products more in the countries with cheaper valued currencies. The introduction of a single world currency means that the global economy will loose this competitiveness and can result in reduced volumes of global trade and investments (Stack Inc, 2010).
One of the advantages of a unified global currency is the fact that it eliminates the opportunity of countries devaluing their currency in order to make their commodities competitive in the world market. For example china has been accused several times for artificially devalues its currency: the Yuan to keep its value low so that its products becomes cheaper when valued against other countries currencies in the world market. These dirty tricks employed by nations around the world of manipulating the value of their currencies to obtain a competitive edge in trade would ultimately end with the adoption of a single world currency. Elimination of these opportunities of manipulating currency can ensure that there is level playing filed in the practice of international trade (Schoen, 2009).
A global single currency also brings the problem of centralization of global power. For example, powerful nations would try to influence the universal currency to suit their interests because if the shared common goal in the universal currency and this can harm the economies of poor countries.
The European Union is a classic example of the successful adoption of a single currency on a regional level. The introduction of the Euro as a the single currency of the European union eliminated the problem of price fluctuations in currency in Europe , However, the problems with the adoption of the euro highlights the problems that the adoption of a single currency presents to the world. For example, the original objectives of the adoption of the euro as the single currency in the European union was to improve the productivity of the European nations as a whole by making small nations more competitive to compete with stronger economies. However, the reverse happened because the overall productivity rate slowed as after the introduction of the euro.
The euro Region also suffers from a poor structure that governs the use of euro as currency each of the countries in the European Union sets its own spending policies tax policies. Many countries therefore incur debts bigger than the gross national domestic product. The introduction of the euro has therefore resulted in another problem .the heavy debt the nations in Europe are allowed to have that has left many countries like Ireland Greece Spain and Portugal with huge debts. These challenges present the countries in the European Union with hard choices to make because a country with these huge debts have had to introduce measures such as a cut in spending or increases in taxes to cover the cost of the increasing debts (Pati 2001).
If the adoption of the euro in the European Union has faced these severe challenges because of the different fiscal policies of the government around the European Union, then the adoption of a single currency by the nations around the world would even face more problems because of the many nations that would be involved.
Until there is, a one government in the world that can maintain the worlds' monetary and fiscal policies .then it is very hard to evaluate how it is possible for the world to adopt a single currency. As long as the world economy consists of a collection of many economies governed by many governments, the existence of a uniform global economy would eliminate the imbalances there are because of many economies pursuing different economic and fiscal policies (Hanke, 2010).
Nations around the world need to retain the ability to control the interest rates to be able to control their interest rates to control the growth of their economies when necessary. They also need to retain the ability to devalue and revalue their currencies to boast their trade prospects. A single global currency is not the fix for the existing mixture of the floating and the fixed exchange rates of exchanging currencies among nations. However, as it stands today, many political difficulties exist for the nations of the world for them to work together towards a common currency (Bahai Inc, 1999).
A single economic currency presents the global economy with the chance of conveying the true value of currencies and easing the process of global trade and investments without the consideration for the political and speculative winds of the day. However, there are stakes attached to currency by nations that make it hard for the introduction of a global financial currency in future. As evidenced by the launch of the euro in Europe the successful adoption of a single currency is possible only if the countries realize the potential benefits of adopting a single currency (Bonpasse, 2006).
The adoption of a single world currency therefore requires many measures towards global monetary harmonization and integration. A single currency would the fore require a strong world monetary institution that is works for the common interest of all the nations in the world to avoid the political manipulation by the nations in the world. It also needs to be strong to ensure that it regulates the supply of money to all the nations in the world and ensuring that there is adequate liquidity to ensure that there is no inflation. The Creation of such an institution must therefore go together with the development of other mechanisms that make good global decisions that build trust and interdependence of the nations around the world to ensure that there is consensus for all the governments around the world (Stack Inc, 2010).
The adoption of a single currency by all the nations in the world cannot solve all the problems in the world but it is a very essential step in the creation of a just and very effective economic system for the world. This just and transparent world economic system is one of the facets necessary to achieve greater world peace and unity. The economic problems facing the world therefore require the application of solutions that would end them completely. The introduction of the a single world currency can solve some of these problems by eliminating inequality in the practice of international trade and ensure that there is a level playing filed in global trade( Bruce & Scott, 2001).
The present system of each country having its own currency has reduced currencies to objects of measuring the economic might of nations rather than as a medium of exchange. The introduction of a single currency can rectify this by making money reserve its purpose of serving as a medium of exchange. A universal single currency can appear as if it is a very wild goal but the fact that it offers some solutions to the perennial problems facing the global and national economies cannot be ignored by many nations in the world for a long time. Furthermore, the growing trend towards integration and interdependence of world economies makes the idea of adoption of a single world currency desirable and viable in the future (IMF, 2010). World's leaders for adoption to realize its potential benefits should investigate this idea of the introduction of a single world currency. The process offers immense benefits to the global economy in terms of trade and investment.
Many regional trading blocs around the world have raised the prospect of regional trade agreements adopting a single currency. For example, the prospect of ASEAN bloc of countries adopting a single ASEAN currency has been raised this year in the regional meeting. A briefing paper was presented in the regional meeting and it was the first time such an idea was being presented in the group. The briefing paper reported that there was a need by East Asia nations to adopt a new exchange rate regime that floats collectively against the United States dollar and other currencies while at the same time maintaining good regional exchange rates. The nations proposed to adopt a currency basket where the average value of the regional ASEAN currency would be determined and then traded against other currencies (Allchin, 2011)
Another example where the idea of a single regional currency is being mulled is in the East African community. The East African nations are mulling over the prospect of introducing this currency as a way of reducing the cost of doing business and eliminating the problem of currency speculation uncertainty and speculation. The single east African currency would also promote regional economic justice as well as creating a level playing field. However, the realization of this objective is still a long way coming because economic convergence has not been attained (Elinaza, 2011).
Many other regions have attempted to adopt regional single currencies like the countries in Central America, and post Soviet Union states. Other regional blocs have also opened the debate about the adoption of a single currency like South American countries , Arabian middle east and many bidding agreements have been signed to realize these goals of regional single currencies in many parts of the world (Cooper,2006).
However, as illustrated by the problems faced by the European Union over, the adoption of the Euro currency as the currency of the European Union, the political and economic differences in the countries in Europe has resulted in the slow adoption of the currency in Europe. The world itself is the one that is less united and politically Unprepared for the challenge of adopting a single currency. It is therefore clear that the adoption of a single currency by nations around the world with all the financial and the economic equality it offers to the world economy will be one of the last stages in the process of global unity rather than being the first.