A Single Currency Will Never Happen

Saturday July 4, 2009

It is true that we live in a global village and it is true that the internet has revolutionised how we communicate, meaning that people all over the globe can communicate with each other in a way that was previously unheard of.

It is also easy to acknowledge that the euro has grown from being a concept in the minds of some Europeans, to being a currency that could well start to act as a serious contender for the position of the world’s No 1 currency.  Yet whilst fans of the euro are claiming that the euro could now become the currency of the globe, or campaigners are actively trying to mobilise people to adopt a new single currency; it is simply a dream.  It won’t happen, at least within the next hundred or so years, or until we get a new world order.

A Utopian Dream

Exponents of the one single currency state that the introduction of a new, single and global currency would bring us all closer together.  Instead of being separated by nations and national currency, we would instead have just one currency.  So the same money would be used throughout the world and this would mean that whether you were a Muslim, Christian, Hindu or even a communist, you would use the same money to buy your goods.  This, they claim, would mean that we would eventually all start to live in harmony, as the national differences between countries would be demolished.

They also cite the abolition of exchange fees as being the main economic reason why various currencies should be abolished, with only one, standard currency in operation.  Other reasons relating to economics and financial harmony are also put forward, since the currency would be monitored and issued by a central bank.

In addition, they state that underdeveloped countries, or countries that have unstable currencies would suddenly have a stable economy and that the developed countries would have to give them less aid and everyone is happy, peaceful and we would all just live in a blissful state, trading with our euros or whatever the adopted currency is.

However, the people who put forward this type of argument are simply ignoring the state of the world in which we all live.  It is a dream, a utopian and perhaps even a naïve dream, but that is all it is.

Political Will

Without an enormous amount of political will, we will never have a single currency introduced throughout the world.  And to put it simply, there simply isn’t that kind of political will anywhere in the world, apart from perhaps Europe and some parts of the US, but even then, it is more for world domination using either the euro or the dollar!

Politicians throughout the world would have to work together and collaborate to make the single currency a reality.  So Iraq and the US would have to be involved as partners, not opposing forces.  Zimbabwe and the UK, who are diametrically opposed on many, many issues would also have to sit down and agree a way forward.  Yet in June 2008, Mugabe, the leader of Zimbabwe declared that the UK had effectively strangled his country.

How would the US react to the concept of losing the US dollar?  How would Europe feel about its precious euro being snatched away and replaced with a new ‘Planet Earth’ currency?

It is true that the countries who came together and formed the EU and then adopted the euro relinquished their national currencies.  They also set aside some bitter memories, with some countries that were invaded by Germany in the Second World War, still suspicious of the Germans.

But their was a real political will to come together to join together and unite as one combined force, with various nation states, but one ultimate common currency.

Whilst it may not be a pleasant thought, it is clear that this kind of political will to unite and come together does not exist throughout the world as a whole.  We are simply too divided in terms of race, nationalities, politics and memories of countries that have invaded or tried to invade others.  We even have nations that are often distrusted, not because the people are untrustworthy, but because the political leaders are not trusted.

The recent events in Burma put some perspective on this: the country’s leaders have denied their own people access to emergency relief.  Would the rest of the world trust the participation of these leaders in negotiations over the new currency?  There are many countries where leaders are interested only in self promotion or may even be cruel to their citizens, ruling by instilling fear in people.  Again, how could a single currency actually be brought about with people of this ilk involved?

When the euro was introduced it was a painstaking process, because even the few countries that formulated the euro could not quite agree on what it should look like, whether it looked too French or too Italian and so on.
There were even some linguistic aspects to the euro, because it was important to find a word that the countries could all pronounce.  Introduce over 100 other countries into this equation and you can see just what a headache this would be logistically, even if the political will was there.

Cultural Issues

There are also some cultural issues that have to be taken into account.  These are actually very fundamental and would alone probably prevent the introduction of any single currency. 

To developed countries, most of whom are Christian, apart from the oil rich Arab states, an important part of the whole currency system rests on the interest rate.

The interest rate is critical because it acts as a means of ensuring that inflation can be assessed and that money can be borrowed and loaned at a standard rate.

But herein lies the major obstacle: the interest rate.  To Muslims, the concept of interest is not a good one.  Borrowing money, credit and interest are all seen as anti-Islamic and indeed the mention of credit in the Koran is explicit: it should not be done.  So this places the western, developed countries in direct problems with regard to interest.  It is unlikely that the western countries would be willing, or possibly even able to let go of the interest rate and it would be extremely difficult for the Muslim countries to suddenly embrace the concept of credit.

Within the Islamic world there is quite a complicated system for banking, with interest being charged at a compensation rate, where the lender does get some money back, but this is at an agreed rate and does not fluctuate.  In some ways this is good for the borrower because he or she knows exactly how much interest they will have to pay.  However, if it is not linked to an interest rate, if the economy suddenly experiences inflation, then the lender can end up much worse off than he or she had anticipated. 

However, the issue is slightly more complicated than this, because credit and credit cards are a fundamental aspect to western banking.  This would pose serious difficulties to Islamic countries in terms of being able to accept the currency and the monetary policy that would have to accompany it.

There could also be a fear within Islamic countries that if a single currency were to be introduced, with credit cards and personal debt the norm, then their people would potentially be corrupted by the new currency and they would act in a way that was contrary to the teachings of the Koran.

So it is very likely that there would be an inability to find a compromise on this one.  Currently, with some anti-Islamic feeling in some parts of the west and some distrust of US and to some extent European policies, particularly with regard to the war in Iraq, it is surely overly optimistic to think that these countries can all sit down and agree a way forward that is acceptable to everyone.  That really would take some political will and a great deal of diplomacy, to say the least.

Moreover, the interest rate cannot be just standard throughout he world, there has to be some flexibility.  It would be stupid for some countries to have an interest rate the same as the US.  They simply need more flexibility than this.  So again, there would seem to be little point in progressing this idea.

Economic Stupidity for the West

Developed countries, it has to be said, have had it easy for some time now.  They have experienced periods of tremendous growth as well as periods when they have seen their wealth steadily accumulate.  This is particularly true in Europe, where there has been a steady period of economic good fortune since the euro was brought in.

So, how likely is that the leaders in the western world would be willing to forego their national currency, which they can directly control and regulate, for some absolutely new currency, regulated by some independent central bank?  This new currency would be used in every country, whether or not it had honest and upright leaders, or whether they were corrupt dictators.  Even the concept of giving up control and then sharing it with other leaders who often may not be honest, or capable, would send shivers down the spine of most right thinking politicians : and quite rightly so.

Proponents of the single currency say that it is important to have only one currency, because this will give countries with an unstable economy the chance to have a stable economy.  Well everyone would agree that all countries should have the right to a stable economy, but on the other hand, the unstable economies could eventually bring down the stable ones.  Although the central bank would regulate the currency, a very few of the countries into which it would be introduced would actually have an issue of corruption.

This may well result in a few of the countries, not dealing fairly and honestly with the currency.  This could have very serious results for the currency overall.  Advocates for the single currency say that it would take away the need to have a black market and so black money markets would simply disappear.  This may be so, but on the other hand, we would be faced with just a few, but nevertheless some, leaders of countries stuffing notes into safes and hiding it until they worked out how to use it.

When the euro was introduced , the Central Bank made it clear that only currencies with a stable economy would be allowed to join.  This has helped keep the euro strong.  But if the world waits until every economy in the world is stable enough to be able to join a single currency, then the world will probably have ended before that actually happens!

It is true that exchange rates have to be paid for changing money from one currency to another.  But on the other hand, this is actually a way of each nation safeguarding its own currency and keeping it safe.  If there were no exchange fee, then currencies would be at risk from other countries flooding it with its cash and so on.  Exchange fees act almost like protective bubbles and sometimes this bubble is very much needed.

Why Fix Something if it isn’t broken?

To get right down to the heart of the issue, there is no real need for a single currency, because the US dollar does it all already.  That may not be palatable to some people in Europe, but it’s true.

The US dollar is used as a peg for other currencies, it is also used to price staples needed by every country, wheat, oil and gold and so on. 

So, if the US dollar is doing this and doing it ok, then why should we even think about changing it? 

Advocates of the single global currency forget that the dollar is doing the basics of a global currency already.  Bu there is something important to bear in mind, if a new single currency is introduced it has to be designed, printed, issued and then circulated throughout the world.

In addition, the old money has to be got rid of and it would need to be destroyed.  So in every country, every banknote would, presumably have to be burnt, or at the very least recycled and every coin melted down to extract the metal from it.  Were currencies not to be got rid of then there would be a temptation to use them (even on a black market).  How sustainable is this?  How could governments justify the waste that this would create?  It is simply impracticable and more to the point, given that there is no screeching need for a single currency, it also seems quite wasteful.

So let the dollar do its stuff and simply get on with its job!

Concentrate on Currencies: not Currency!

If time effort and resources are spent on the notion of a single currency, then this is basically a waste of time.  Instead of thinking about one currency, consideration should be given to currencies.

Although the idea of a single currency is not viable, viewed from a realistic viewpoint, there is no reason why it is not feasible to have a world that only has several currencies.

Africa is already consolidating some of its different currencies.  The Middle East should have a currency for all 6 Arab states by 2010 or thereabouts and the euro is of course dominant in Europe and spreading fast.

But several currencies would at least ensure that religious, cultural and to some extent social groups could form a common currency that was acceptable to them all. 

A global currency would be so vast, that it would be hard to control it and the sheer size of the operation needed to regulate and monitor the currency throughout the world may be so big that it actually gets swallowed up in bureaucracy and simply implodes on itself.  Where would this leave the world?

Most people in developed ‘wealthy’ countries live 3 paychecks away from poverty.  Most people in 3rd world countries live in poverty or on the edges of poverty.  Can any of us, no matter how well off we are run the risk of playing about with the currency?

Finally there is one very sinister aspect to the concept of a single currency that is almost too unthinkable to mention and that is, what if the global central bank fell into the hands of people who were corrupt?  The effect of this on people’s day to day lives would be enormous and potentially life threatening.

The bank would ultimately need someone to lead it and control it.  This would be the most powerful job on Earth (ever) and as we all know, when anyone has absolute power they are in danger of proving the saying that ‘absolute power corrupts -absolutely’.  This is simply too great a risk.  A single currency must never be allowed to happen!