Historically, each country has had its own currency and it has generally been very proud of its currency, with it viewed as a symbol of national identity and to some extent, national pride. But now there seems to be some kind of change afoot where currencies seem to be changing in their nature and they are becoming less tied to one nation and instead there would appear to be a move towards having networks of countries that all use the same currency.
When the euro hit the streets in 2002, it effectively wiped out 12 currencies overnight and it was soon to start to be attractive to other countries that all wanted to be a part of this very new and exciting currency.
The Gulf States have been working for some time now to try and establish a common currency between them and it is likely that this may be in circulation as early as the year 2010.
West Africa has introduced the CFA, which is her new currency. It is used in eight West African countries and is seen as a way of promoting regional integration within West Africa. This is also seen as a way of boosting trade and making trade more efficient because the same currency can be used and so there are no exchange fees payable.
So the principle of integrating currency can be a very good thing in terms of economics. If you have a shield of countries that are geographically very close and share some common goals and interests, then using the same money will actually make perfect sense.
The concept behind integrated currency, is radically different from having a single global currency, because the integrated currency would only be used in specific areas, which have something in common and have all worked together to create the currency.
So the countries in West Africa that have introduced the CFA are all French speaking and they have common links and similarities in terms of trade. They also share a relatively common history and their cultures are not too dissimilar.
In this way you can take a group of countries and have a shared currency that will unite and boost trade, but it will also provide that area with not just economic stability, but also with a shared interest in making sure that the region has a whole is stable. In countries such as Africa this can be of critical importance, due to the fact that there has long since been a history of some currencies and some countries being quite volatile.
The currency that was introduced in West Africa has actually proved exceptionally popular and four other countries in the West African region actually want to introduce a second currency, which is known as the ECO.
This would be used alongside the CFA and then ultimately the two currencies will simply unite and one single currency will be used throughout this region. Making a total of 12 countries using it.
Early indications are that the use of a single currency particularly within the kind of economy that is traditionally found in West Africa, relatively poor and undeveloped, does boost local trade quite significantly. This is because countries do not have to pay an exchange fee when they are buying and selling and so it becomes easier to buy and sell from your neighbor, rather than looking to Europe or further field.
So what are the implications for the world of finance?
It is likely that we will see some kind of change in terms of currency and how we view currency. As more and more countries join the euro, we are already seeing national currencies disappearing or about to disappear.
Since early times, money has been used as a means of bartering for goods and ensuring that there could be some kind of fiscal policy and a standard against which things could be measured and their value taken against the currency.
People have long associated their currency as being very much a part of their national identity. If we look to the United Kingdom, we can see that they are fiercely proud of their British pound and indeed when the euro was first introduced the British refused to use the euro and they show no signs of adopting this currency for some time to come. The British want to hang on to their quaint bank notes, all of which carry a picture of the Queen. She is even depicted on every coin.
In the United States, many people are also very fond of the dollar. Indeed, it would be quite a brave politician who suggested that the dollar should be abolished and replaced with a new kind of currency. We can imagine the outcry if Washington were to announce that instead of the dollar being the currency used in the United States, it was now to be the European euro instead!
It is likely and most probable that there would be significant opposition to this and people would be almost outraged at the prospect of getting rid of the dollar and its very proud history. The dollar is very much linked to the national identity and national psyche of the United States and it would be very hard to replace the dollar, without a great deal of soul searching.
Yet currencies are replaced in other countries without all the shrieks and cries that would happen in the United States. So does this mean that there is a difference in how different people and different nations view currency? Or is it the case that some countries are willing to relinquish their currency in order to achieve more of economic stability?
Well the answer to this would seem to be that it is a combination of being pragmatic and practical, along with a desire to participate in some kind of common partnership that makes new currencies attainable and perhaps more importantly, acceptable to the people. If people can see the benefits and the economic arguments are sound, they are more likely to accept their currency been replaced with another.
When the euro was introduced, some countries did moan about their currency disappearing and initially, there was some resistance and people found it difficult to acquaint themselves with a new currency.
However, the euro was very quickly accepted and people soon forgot about their national currencies. Due to the fact that the euro has now become so successful and other countries want to use it, we may well see currencies, as we know them, starting to disappear.
Countries that were formerly part of the Eastern bloc now seem to be clambering to use the euro as a means of protecting themselves and making sure that they have economic stability. So, it would be reasonable to think that by the year 2020 or 2030, the euro may be used in a great many countries all over the world. It seems pretty obvious that even the countries that have opted out from using the euro will actually have adopted by this stage, simply for economic reasons.
Increasingly, countries such as the United Kingdom that have opted out from being part of the euro will probably find that they are becoming isolated in economic terms and over the years, it will start to make sense for these countries to join the euro and end their isolation.
Africa could then have its own currency, which would be used as a standard African currency. This would effectively be a grander version of the West African CFA, but could help Africa to become relatively strong in terms of its economy and perhaps assist in terms of helping it to become more self-reliant as a Continent. There is a hidden element to the introduction of an integrated currency and that is that countries now have a very strong interest in ensuring that their neighbors are economically strong and that they are stable. Obviously if the economy of one country collapses, then it will bring others down with it, so there is a mutually shared interest. All the countries that use a currency will wish to ensure that their neighbors are doing OK. This could be such a force for good and could well revolutionise continents in a positive way.
North America, namely Canada and the United States could work together and have a joint dollar system that could be used in both these countries. This may actually help protect the US dollar, particularly at times when it is weak. Whilst this may not seem palatable to people in Canada and the US, the fact that other currencies are being grouped together and used in this way, may make the integration of Canadian dollars and American dollars inevitable. This may not happen for some time, but the reality is it may well happen, which will be interesting in terms of how people react to it.
South America, as a whole could also have its own currency and this would give it the same boost and potential for economic stability as the African currency.
Obstacles to integrated currencies
Political differences and political distrust are obvious reasons for currencies not being able to be integrated. Whilst it may make sense for India, Pakistan and Bangladesh to have a common integrated currency, these countries have not been traditional friends to each other. It is unlikely that they would be able to achieve a common currency, since they may use rupees, in both Pakistan and India but they are different, with the Indian rupee and the Pakistani rupee in circulation. Bangladesh currently uses the taka.
Yet as time goes on, these obstacles may actually become less insurmountable. In the case of the euro, the countries were able to unite their currencies, despite a very difficult history. In particular, France and Germany have never been traditional allies and in the Second World War, France was invaded by Germany and indeed throughout the history of France, it has always feared invasion from Germany. And yet, by 2002, both these countries were able to unite and come together to use the same currency. This would have been simply inconceivable 50 years before euro was introduced. But it happened and more to the point has been quite successful.
Countries that have neighbors, who are dictators, will be unwilling to join with the dictators and have an integrated currency, for a very good reason!
The use of fewer currencies within the world could be a very good thing and it will probably help countries to work together and make sure that there is greater economic stability throughout the world.
However, there is a danger that the use of currencies in blocks of countries could also be influenced by religion. This is one issue, that is relevant when looking at the new currency planned for the Arab states in the Persian Gulf. These are all Muslim countries and as such, they are all based around Islam and Islamic practices.
If you take this kind of development to its logical conclusion, then this could mean that currency could increasingly be linked to religion. There could be unions of Muslim countries, all using a shared Monetary System and currency. Then you would have Christian countries using either US dollars or the euro. Countries that practice other faiths could then unite and have their own particular currency.
This could well lead to problems and tensions within the world, particularly because religious issues can divide people quite quickly and so this could actually create more difficulties in the future as nations become grouped together as some kind of super states.
One of the central tenets of an integrated currency would be some kind of integrated Monetary Policy, throughout the countries that are using the currency. In order to achieve this there has to be some level of political will as well as a strong desire to actually work together and make sure that the policy can be implemented and stuck to, even when times are hard.
This involves a great deal of trust between nations and they really do have to trust the other countries that are involved in the currency, otherwise it simply will not come to fruition.
Unfortunately, this kind of collaboration can be quite difficult to achieve in reality and so there are situations, where this may not be possible, because countries are either unwilling or unable to work together. This would render the implementation of an integrated currency as simply impossible.
So, an integrated currency used in different blocks of States, is not quite is simple and straightforward as it may first seem and the reality is that it does take a long time to achieve an integrated currency.
There are, however, some definite advantages that would be achieved if these types of integrated currencies come into being.
The first is that there would be fewer exchange fees payable when carrying out trade between different countries. If there are only 10 or 15 currencies left in the world, then literally $ millions or potentially billions of dollars could be saved, over the international markets as a whole.
Trade would as a result, become much easier and it would be faster because money doesn’t have to be changed from one currency to another. Undoubtedly this would streamline all kinds of transactions and make it very easy to do business, throughout the world.
It may also prove easier to keep track of money. Currently there is a huge issue with regard to money laundering and this creates a real problem for financial institutions. Due to the number of currencies that are currently in use, it is actually very hard to keep track of money and establish whether or not it is in fact ill-gotten gains or legitimate money.
If only a few currencies were in use, then this situation could be eased somewhat, because there would be less opportunity to change money into different currencies and launder it in that way.
Will national currencies disappear?
Whilst the advent of the euro has undoubtedly given rise to speculation that this type of currency is indeed the new way forward and despite the West African and Gulf states developing their integrated currencies, national currencies will be around for some time.
There are some countries that are geographically remote from others, other countries may simply not wish to work with other countries or they may be unable to, in which case they will retain their national currency. But they will find themselves much more economically isolated than they were previously.
However, it is reasonable to predict that within the next few years we will probably see the euro expand to take in more and more countries. By 2010 will also have the Gulf States currency and by this stage, there will probably be more countries joining the West African currency. So undoubtedly, more countries will lose their national currency and they will adopt another currency, to give them a little bit more economic stability in these troubled times.