In
the year 2009, Timothy Geithner, who was USA's Treasury Secretary at the time,
claimed that he is open to the idea of introducing a global currency, the
responsibility of which would be taken by the IMF, that is, the International
Monetary Fund. While a countless number of people were flabbergasted at the
entire idea, introducing a global currency is an idea that has been pondered
over by many.
One of those people is a giant of the financial world, John
Maynard Keynes. So, would the idea of a global currency work? Or better yet .
do
we even need a global currency? The most reliable way to evaluate whether or
not the world needs a global currency is to look at its benefits as well as
disadvantages.
Benefits Of Having A Global Currency
The
effects of a global currency would certainly be different for all of the
countries in the world. However, there is no doubt that the effects would be
positive as the countries will no longer have to experience currency risk when
it comes to trading in the international market.
In fact, the traders won't
have to hedge their positions to avoid all the potential negative effects of
fluctuations in their currency. That's not all, transaction costs when it comes
to international finances would completely cease to exist, as there would be no
need for them.
A good estimate of how beneficial the elimination of transaction
costs can be seen when European countries shifted over to the Euro. An estimate
between 13 billion euros to 20 billion euros was saved, solely due to the
elimination of transaction costs between the European countries.
Disadvantages Of Having A Global Currency
While
having a global currency has its benefits, it also has its disadvantages. The
most prevalent disadvantage of having a global economy is that it would lead to
all of the countries losing their monetary policies, which are independent of
each country and used as a means to regulate economies on a national level.
The
impact of this can be evaluated by looking at the economic crisis that the USA
went through in the year 2008. To combat the severity and the negative effects
of this economic crisis, the Federal Reserve lowered the United States interest
rates by an extreme amount and simultaneously increased its money supply.
These
actions allowed the USA to give a boost to their economic growth thus being
able to combat the severity to some extreme. If a global currency is introduced
then countries will no longer be able to come up with the best-suited solutions
to combat the economic crisis that they might face.
Now
that we have understood some of the effects that would be experienced by the
world if a global currency was introduced, we can figure out the answer. Do we
need a global currency?
The answer to this question is that, no, we do not need
a global currency. In fact, introducing and implementing a global currency can
be considered to be highly impractical, particularly, in today's economy.