Why Isn’t There a Single World Currency?
A pile of money from around the world — currencies of the U.S. (dollar), U.K. (pound), and Europe (euro). Creative Commons photo courtesy flickr user Images_of_Money.
Paul Solman frequently answers questions from the NewsHour audience on business and economic news on his Making Sen$e page. Here is Wednesday’s query:
Name: Joseph St. Amand
Question: As we are reminded daily, we are all part of the same Earth. That place we call home is a small part in the “global” diversity system. Why then do the economists maintain separate dollar/currency values by region or countries when everyone should be playing on a level/moral playing field?
Paul Solman: Ah, the dream: one world, one economy, one currency — and, of course, one global political system. It may prove the only way to survive here on Earth, but if Europe is a leading indicator, it’s not likely to happen anytime soon. Diversity means different strokes for different folks. But a common currency means a common economic policy, which is turning out to be impossible for groups of people with habits as different as those of the Germans and those of the Greeks. Remember, even here in the “United” States, we fought a devastating civil war over conflicting economic policies: some 625,000 dead, the most of any war in which America has ever been involved and 2 percent of the total population. Adjusted for the number of Americans today, that would be 6 million fatalities — over economic policy.
I don’t mean to denigrate your proposal, Joseph. The towering economist of the Great Depression, England’s John Maynard Keynes, advocated a single currency for the post-War economies of the West at the 1944 Bretton Woods conference when it seemed clear the war would be won. Look up the “Bancor” for further details. Lord Keynes’ American counterpart at the event, Harry Dexter White, eventually won out and there was, in effect, a “free world” currency — the U.S. dollar, which in turn was pegged to gold. But economic imbalances in trade and money creation persuaded President Richard Nixon to cut the cord between the dollar and gold in 1971, suggesting just how hard it is to maintain a single world currency.
Admittedly, the dollar has been the de facto currency in much of the world since, but its shifting value has pretty much reflected economic policy differences between the U.S. and other countries over the decades. Similarly, the world’s other currencies have pretty much reflected their national economic policies — chiefly, how they choose to manage their money supply and their trade. The huge exceptions were the countries of the Soviet bloc, when the Iron Curtain still hung, and of course China, which still manipulates the value of the “people’s currency,” the Renminbi.
This entry is cross-posted on the Making Sen$e page, where correspondent Paul Solman answers your economic and business questions