What would happen if there was a world currency?

Question

The value of currencies flutuate against each other, what would happen to the economy if there was just one universal world currency?

Answer 1

Historically, there was just one world money -- gold. There would be no such thing as exchange rates because every country is using the same money.

You should keep in mind, however, that the functioning of economies with just one world currency would be quite different than today. Under a regime of flexible exchange rates, a country with a balance of payments deficit would find that its currency would depreciate or be devalued relative to others. This causes exports to be cheaper and imports to be more expensive thus eliminating the deficit.

With a world currency, the exchange rate could not adjust to eliminate the deficit. Instead, the world currency would flow out of the country since imports are greater than exports. This decline in the money supply in the country would raise interest rates, cause unemployment, and eventually force a reduction in overall domestic price levels. This reduction in domestic prices would eventually restore a balance between exports and imports.

This is what is now happening to those European countries that have adopted the Euro. With a single currency, the only way to deal with a balance of payments deficit is through deflation and to deal with a surplus is through inflation.

Answer 2

Besides the obvious simplification for trade and travel, countries would no longer be able to conduct independent monetary policy. How much of a problem this would pose is not certain. The EU is doing it, but most of the countries have similar per capita incomes and are small and much of their GDP is trade related and so the gains from simplification are large. The problems of the US and China sharing a currency might be much larger than what we see in the EU. Economists seem to think that China pegging their currency to the dollar (which has much the same effect as a common currency) is causing problems and the US is trying to get them to float the Yuan.

Edit: Other posters seem to be confusing the effect of a common currency with the Gold standard. Since it is unlikely that the amount of gold would keep up with world GDP growth the result of instituting a gold standard would be deflation which would produce a positive return for holding money and without taking any risk. There are very few economists who do not think this would have a negative impact on economic growth. There is no reason to think that a common currency would have this effect.

Answer 3

All money has to have a value!
If paper currency is actually an I.O.U. issued by a bank it's value is actually un-determine-able because the banks can lend out too much on occaision, and if borrowers default the bank could also be paying out more currency, on their own loans, than they take in.

A world currency ""REDEEMABLE"" in a commodity that has universal value can and did work quite well for hundreds of years, it was called an American Gold backed dollar.
Nixon broke the Gold connection to the dollar in 1971, which has caused the dollar to lose value ever since.

Here is an excellent 34 minute audio by Congressman Ron Paul on money:

http://www.apfn.net/pogo/M001I060425193838-RON-PAUL-MONEY-4-25-06.MP3

To answer your question the world & the U.S. prospered on the Gold standard. From 1865 to 1913 the U.S. growth rate was approximately 4% per year.
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Answer 4

I would be in heaven
Goods (those crossing national borders) would actually be bought and sold according to what THEY are really worth according to THEIR market and not being affected by the currency specualtion market, which in economic efficiency should have no affect on the real price of a good

Answer 5

I pray this happens in time.

If that would happen, goods would be traded for their actual worth, and not based on speculative market mentality like they are now.

This would also end child-labor or basically slave-labor exploitation factories in S. America, Asia and Africa that companies like Nike, Mattell (the list foes on and on) and so forth take full advantage of.

There are many advantages to this, mainly....it may bring jobs back to the US as there would no longer be a distinct financial advantage for companies to take their jobs to Venezuela or China anymore...amongst other things.

Answer 6

All it would do is eliminate SOME confusion. To the guy who mentioned child labor, you're very very...very confused. First off, it would not affect child labor in the long run. In the short-run it COULD raise or lower it. Moreover, child labor is not relatively BAD. Must we always have to point to the obvious ALT. If you don't know what the obvious alt. is....you shouldn't even be on this website, because, basically, you're an idiot. (sex workers) is what I was referring to!