One World Currency:
1 April 2009
The swift and ruthless exploitation of the economic meltdown on behalf of globalists and central banks revolves around their drive to move towards a one world currency system and an unprecedented centralization of global financial power. Statements on behalf of world leaders and central banks over the past year have made it clear that the agenda to further collate economic power and control of currencies into the hands of the few is rapidly accelerating.
The british Prime Minister Gordon Brown has led the call for a new global financial order in which the world financial system would be built around a centrally coordinated policy of international regulation. and a new global body to oversee the financial crisis.
The sentiment echoes those of elite figures in the global banking system, who have called for a new global monetary authority, a de facto global financial dictatorship, operating across borders and forcing nations and corporations to adhere to strict monitoring and regulations. European Central Bank council member Ewald Nowotny told Bloomberg that the centrality of the USA dollar was in question and that a global currency system is in development between the USA, Asia and Europe to replace it.
In an age when international interdependence and integration are increasing on all fronts, a universal system of currency is one of a number of measures that would help to simplify and facilitate world trade among nations. A single currency would in some respects be like a world language, improving communications around the globe. It would eliminate the present problems of speculation, instability and uncertainty and would provide a strong foundation for the growing world economy. It would reduce a significant cost and risk of doing business internationally.
A global currency would also be an important step in promoting economic justice in the world, removing the advantage of the few whose currency is seen as stronger or more secure and preventing the poor from being hurt by the impacts of currency fluctuations. In the long run, such a step would do much to counteract the local harm that is sometimes induced by economic globalization by putting everyone, everywhere, on a more level economic playing field.
The idea of a world currency is not new, economist John Maynard Keynes proposed an international currency union in the 1940s. His idea was watered down at the Bretton Woods Conference by diplomats afraid of something quite so dramatic, and in its place emerged the International Monetary Fund and the World Bank.
Transactions worth over USD one trillion are made everyday in the international financial market scenario. The greatest effect of a single global currency would be on the foreign exchange, as there would dramatic reduction of currency transactions in the derivatives market and the spot markets. There would perhaps be no necessity for currency hedging and the single currency introduced will be the only reserve currency for the world. Financial market globalization and integration across all stock markets may be witnessed as a result of a single world currency.
It would become easier to trade stocks on multiple exchanges and offering shares internationally at an IPO (Initial Public Offering) would become far less complex. This would give large capital bases to many industrial players. Apart from saving themselves from foreign exchange risk, there would be practical eradication of economic risk as well as translation risk, gaining a cover over more than 200 currencies worldwide.
But there are disadvantages of a currency Union, the currency union implies a single monetary policy and a single exchange rate for all member countries. A country that joins a currency union therefore gives up the opportunity to select a monetary policy that it regards as optimal for its own circumstances. Similarly, the country's exchange rate cannot respond to the market forces by which changes in technology, taste, and the behavior of other countries affect its international competitiveness.
A country that considers joining a currency union must weigh these disadvantages against the advantages. This balancing will differ from country to country. Each country must consider the extent to which it can expect to gain from those advantages and the extent to which it would be disadvantaged by the single monetary policy and single exchange rate.
The adverse effect of the single monetary policy and single exchange rate will depend primarily on four conditions.
(1) Industrial similarity. If all of the countries in the currency union had the same industrial composition and were subject to the same shocks to technology and demand, the lack of individualized monetary policy and differential exchange rate movements would be irrelevant. A country that considers joining should evaluate the extent to which a monetary policy designed for the currency union as a whole would be the best one for itself. We see in the EU substantial differences among countries in the distribution of industries that are reflected in differences in unemployment rates and in trade balances.
(2) Labor Mobility. A fall in demand in a particular country or region will lead to less unemployment if the labor force is geographically mobile and can shift to other areas where demand is stronger. This is one way in which the United States has been able to cope with cyclical and structural changes in demand. The ability to achieve such labor mobility in a currency union depends on several features. The variety of languages clearly inhibits labor mobility within the euro area. Labor regulations, union restrictions, and licensing rules may also impede such geographic mobility.
(3) Fiscal Structure. Fiscal policy is important in two ways: the role of the central fiscal authority and the freedom of the individual national fiscal authorities. In the United States, the central government collects about two thirds of all taxes and an even larger part of cyclically sensitive income and profits taxes. When demand falls in a particular part of the country, the amount of taxes paid from that region to the central government falls. This automatic fiscal policy dampens the local decline in net income and therefore stimulates demand relative to what it would otherwise be. That helps to compensate for the lack of an independent monetary authority for the region. In a currency union with a very small central fiscal authority, like the EU, there is no such fiscal counterbalance to local swings in domestic demand.
(4) Willingness to Sacrifice. The potential success of a currency union depends on the willingness of the member countries to accept what the monetary authority regards to be best for the group of countries as a whole. At times, that will mean a policy that is directly counter to the interest of specific countries within the currency union. The willingness of those countries and of their voting publics to support a common policy that is clearly against their interest is a critical feature that will govern the long-term success and survival of any currency union.
Members of the currency union can of course vary national taxes and spending to provide a local stimulus to offset declines in demand. But this ability to run deficits creates a problem for the currency union as a whole. Because there is a single currency, large fiscal deficits in any single country do not create the market feedback in the form of higher interest rates or a weaker currency as it would if the deficit country had its own currency. Although there are some relatively small differences in national interest rates, the primary effect of any country's fiscal deficit is diluted and spread over the entire currency union, causing the common interest rate to rise and the overall currency to decline.
While this is an advantage for the country that alters its domestic policy, it is a disadvantage for the currency union as a whole. That led to the Stability and Growth Pact that, in principle, limits the extent of any country's fiscal deficit. Some rule of that type is a necessary feature of any currency union in which fiscal actions remain decentralized among the member governments. That limit on each country's fiscal policy is a further disadvantage for countries that consider joining a currency union.
And it is for these very reasons that the utopian dream of a one world currency will come to nothing.
