Can a single global currency work?

A single global currency has a few advantages over the current system of 190 separate currencies in circulation in the world. The first of these is that it would eliminate huge volumes of global currency trading and the considerable costs associated with this. Currency speculation which has at times resulted in quite spectacular currency fluctuations would become a thing of the past. Of course it follows that currency fluctuations would end. It can also be expected to bring about greater stability to world trading conditions.

The European Union - or EU - has taken the lead towards a single currency. Amidst much controversy, the Euro was adopted as the currency of many EU countries. It has proven that a single global currency can work - at least at a regional level.

All is well as long as the countries are able to live and trade with each other. What would happen if one of these countries experienced a rogue government intent on world domination?

The concept of a single global currency is not really that new. The gold standard until World War One meant that all currencies were linked to gold. Gold was therefore the real global currency. Until 1971, currency rates were fixed. The pound sterling had a fixed relationship to the dollar, the yen, the fanc and so on. These fixed exchange rates may have been artificial, but they certainly help to maintain stability and predictability when it comes to international trade. In 2001, the South African rand suddenly lost almost 60% of its value against the dollar. Exporters had a field day, but the cost of imported goods soared. By early 2002 the rand had recovered all of its losses. A very unsatisfactory situation for business that are tied into agreements with foreign suppliers and customers.

A single currency is working in Europe where over 500 million people either use it directly or have currencies that are pegged to the Euro. Over 400 million Americans use the US dollar, and millions more around the globe rely on the dollar as a benchmark to price goods and services.

Of course there are problems associated with the concept of a single world currency. The first is the lack of stability in the world. How can you find agreement between countries that are at war? Weaker economies may feel that they are being dominated by the rich and powerful.

Europe has managed to implement its own central bank. But a World Central Bank is much more complex. The result could be one of US hegemony, where other countries all play second fiddle.
One of the major drawbacks of a world currency is that it limits the ability of individual countries to control interest rates. Pressure to reduce rates in the US or EU would override an individual country's need to increase interest rates.

Implementing a single global currency may in fact be similar to bringing back the gold standard. Gold then becomes the standard unit, but each country has its own linked currency. The gold standard could be the better way to achieve a global currency as it allows each country to determine its own monetary policies.

The Euro has provided an indication that a global currency can work. The Euro has been a major success for the EU. Many forecasters of doom have been silenced on this issue - or perhaps the problems are still to come?

An organisation that is actively promoting a Single Global Currency is the Single Global Currency Association. Have a look at the site and read the book. The arguments for a single currency are compelling.