Why doesn’t the world adopt a single currency? What would the pros and cons be?
Originally Answered: What are the pros and cons of a single, global currency,i.e., a super currency?
The Pros and Cons of a supercurrency are basically attributed to its feasibility. The Pros are self-evident. There will be no forex trade costs and no hedging. There is also a notion of ‘a more integrated world’. Also, it would promote tourism since the exchange costs will be negated.
However, the cons are much more valid and need more explanation
1. All countries have different economic and political systems
As you are aware, there are developed countries like the USA, Germany, UK. And then there are underdeveloped/Third World countries like India, Pakistan, Zimbabwe etc. These countries have different fiscal and monetary policies in place with different long-term development plans. Thus the implementation of said policies will have widely varying consequences on the consumption and purchase activities of consumers, which is basically what influences prices and demand/supply of various products, leading to fluctuations in the value of their indigenous currencies (or as given here, the supercurrency). Imposing a supercurrency will not allow the laws of demand and supply compensate for the change in purchasing power of the currency in one country as opposed to the other.
The second thing to consider is that the Universal Central Bank, as we will refer to it, has to make a singular currency policy for the entire world. It outlines the rate at which private banks borrow from the UCB and also the proportion of money the banks have to keep as a reserve with the UCB (a.k.a. the SLR). This will be practically impossible to do for all countries and all their banks, keeping in mind the inflation situation in all of them.
The Euro was initially successful because at that point of time, most of Europe was at an equitable level of development and nearly all the counties were based on a common economic direction. But in recent times, with the collapse of Greece’s economy and Spain and Portugal facing depression, the Euro has been shaken and this had has its effect on superpowers like Germany and France. This is another drawback of the common currency: shockwaves caused by problems in one country affect other countries to a much greater extent.
- Currency is a part of a country’s identity
Currency, of all kinds, represents significant people and events in a country’s history. People take immense pride and belongingness in their currency. A universal currency will most probably an ambiguously designed thing so as to not favor any country’s identity over another. Would it make the people of North Korea happy to share their currency with South Korea and the USA?
Common currency is basically trying to fix something that isn’t broken. It is a good concept but not worthwile enough to overhaul the entire fiscal process of the world. And finally, it will not be agreed upon in any sort of decisive majority because of the political tensions that are currently existing, and that always have and always will, in the world today.