Why the World Doesn't Adopt a Single Currency

There have been various discussions about whether the world economy would benefit from switching to a single currency.

However, after a look into global currency regulations, it has been determined that the setbacks outnumber the benefits.

We’ll first take a look at how a global currency would benefit the global economy and then evaluate why this might not be a good idea.

International Travel

Anyone who has traveled internationally knows that exchanging your currency can be a very simple and easy process. However, where they run into difficulties is upon returning home.

Many times, travelers end up with excess coins that aren’t able to be exchanged back to their local currency. Our tip for exchanging foreign coins is to donate your leftover coins to the UNICEF Change for Good program!

However, if there was a single global currency, international travelers wouldn’t find themselves back home with currency they are unable to use.

Also, when traveling, international pricing would be more transparent. There would be no worry of calculating currency exchange rates when making purchases in foreign countries.

International Trade

Firms involved in international trade have to take extreme precautions to hedge risks associated with currency fluctuations. A single currency would completely eliminate this risk, saving these firms time and money.

This would also be very helpful in developing countries by introducing a stable currency. For example, Zimbabwe actually suffered one of the worst hyperinflation crises in history, causing the Zimbabwean dollar to be replaced in 2009.

In general, we would likely see an improvement in world trade. No extra costs for security and exchange rates would make international trade appealing to more countries. However, a single worldwide currency would eliminate the flexibility of having individual currencies.

No More Devaluing of Currency

Currently, countries such as China use currency to effect prices of their products in the global market. Making their goods cheaper in the globally has helped China become a large exporter of products. Turning to a single currency would take away the ability for a country like China to have this power over other currencies.

Elimination of Independent Monetary Policy

Based on fluctuations in economic stability, countries will adapt policies in order to regulate the economy. For example, a country may lower or increase interest rates based on money supply.

This ability actually helped lessen the severity of the recession in the United States. Any change in monetary policy would have to be worldwide, not on a country by country basis.

Legitimacy

Regulating a worldwide currency would prove to be more difficult than allowing central banks in each country to have the power they currently do. Currently, political legitimacy cannot be imagined for any transatlantic or trans-Pacific monetary authority, showing a global one wouldn’t be realistic.

While a single global currency may seem like a good idea on the surface, the implications that would come with it keep it from being a practical option. More research will have to be done in order to find other solutions to making international trade easier.

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