The idea of creating a universal world currency has been around for centuries. Many prominent economists advocate the creation of such a currency, but in some countries, the concept is met with ferocious resistance. The first recorded instance of the consideration of a world currency occurred in Italy nearly 500 years ago. Since that time, single currencies have been spread far and wide through military conquest, and consolidated currencies have been created between adjacent countries with similar customs and trade partners, such as that of the Scandinavian Monetary Union from 1873 to 1914, but never has a single unified currency been established for the entire world.
Among those that advocate the establishment of a universal world currency is Canadian Robert Mundell, winner of the Nobel Prize in Economics in 1999. He and many other esteemed world economists cite several reasons for introducing a single world currency. The three most persuasive reasons are the following:
The foreign currency exchange is the largest market in the world. It is estimated that between $1.7 trillion AUD and $3.5 trillion AUD worth of currency is traded on a daily basis. It is further estimated that 0.33 per cent of this volume of transactions is comprised of trading fees and costs. While 0.33 per cent may seem quite low, given the high volume of transactions, the total fees and costs in one year may equal as much as $4.2 trillion AUD per year. The creation of a universal currency will eliminate all such costs and allow money to flow more freely between nations.
In recent decades, the importance of international trade in the global marketplace has grown significantly. The economy of almost every country is tied in to the economies of its trading partners. This means a nation must not only be concerned with its own currency but with the currencies of every country that it trades with, whether it is import, export or a combination of both. Recent currency crises have shown that one nation's crisis sows seeds of fear that can affect most of the world, creating a worldwide currency epidemic. The currency crisis of 2008 is a prime example of how one crisis can spread across the globe. Other examples include the currency crises in Latin America, Asia and Russia.
The borrowing and lending of money between countries is very common in the modern global economy. In fact, every country is assigned a credit rating by third party financial analysts much in the same way as individuals are. Due to sudden and unforeseen devaluation of currency, creditors stand to lose millions or even billions of dollars by lending money to nations in need. The creation of a universal world currency would allow creditor nations to loan money to other countries on a straight annual interest rate, instead of having to worry about the fluctuations in the foreign exchange market.
While the creation of a universal world currency is favourable for many reasons, a vast opposition exists in carrying out such an endeavour. Many people and business entities stand to lose money if a universal world currency should exist. Other factors are not so substantial but are just as deeply rooted and strongly emotional. The three leading factors against establishing a world currency are as follows:
Although it is the least scientific of all the reasons to oppose the establishing of universal world currency, nationalism is, perhaps, the strongest and most determining factor. Several countries have opted out of adopting the euro because of popular sentiment, including the United Kingdom. The people of many nations are proud of their heritage and individuality. They like to be seen as a member of a particular nationality, and they do not want anything to reduce the individuality of the nation. If their parents, grandparents and great-grandparents used a particular currency, then they believe it is an honour to them to continue using the same currency themselves. If a country's government adopts a universal currency without the national support of the people, it could have a detrimental effect on social order and other social policies.
The creation of a universal world currency does not simply mean everyone will be using the same coins and banknotes. It means a single monetary policy must exist to set up, regulate and issue the currency. The problem with this is that not every nation in the world is in a synchronous business cycle or business style. Different national monetary policies allow each country's economic situation to be finessed or massaged in such a way that is beneficial for that country although it may not work well for another country at that particular time. This exact issue has plagued the European Union since its inception. However, the European Union has done a remarkable job at working through the problem.
Creating a universal world currency entails the creation of a single monetary policy, but this is not the end of the problem. The monetary policy would have to be set by a single governing currency board or central bank. A universal central bank would be required to set world interest rates, set policy for commercial financial institutions and act as a banker to the autonomous governments of the world. Each country must have representation in the central bank, but the extent and means of representation will be hotly contended. The central bank must also have safeguards so that one nation does not have more influence than any other nation. Such a situation would be disastrous to the balance of the world economy.
If there is one point of agreement among those both in favour of and against the creation of a universal world currency, it is that such a concept will not be a reality any time soon. During the Bretton Woods Summit after World War II, the concept was ripe for adopting, but the allied nations could not come to agreement over even the most trivial of facets, such as the name of the currency. The leadership of the European Union suggests that a universal currency will not come about through sudden legislation but will eventually come to be through a slower process akin to evolution.