Academics & Economists
The views below are presented in reverse chronological order
Philip Arestis and Santonu Basu
“In recent years financial liberalization, although not necessarily able to deliver a higher growth rate or for that matter to bring efficiency in the financial sector (Arestis and Demetriades, 1997), has brought a new twist in the process by introducing a highly politicized term, that of financial globalization. The term financial globalization refers to the process by which financial markets of various countries of the globe are integrated as one. We wish to argue that although financial liberalization is a necessary condition for financial globalization, it is not a sufficient condition for it. The introduction of a worldwide currency managed by a single international monetary authority is the sufficient condition.” This quote is from the Abstract of their article, “Financial Globalization: Some Conceptual Problems” posted 5/5/03, with Social Science Research Network, Social Science Electronic Publishing.
John Edmunds and John Marthinsen
“We are now at a point at which serious questions are being raised concerning the need for independent national currencies, but such has always been the case. The main point in this book is that enormous amounts of financial wealth can be created or destroyed when countries make choices about having national currencies. They can continue having national currencies, choose to merge their national currencies into supra national currencies, or adopt an internationally recognized currency such as the dollar, euro, or the yen. This decision, which most countries took implicitly or avoided in the past, is now a more conscious, well-publicized decision…. In most countries, the electorate is a long way from being convinced that the national currency should pass into history…. The world financial economy may be reaching a similar watershed, and the balance may be swinging in favor of currency unification and supranational currencies.” Wealth by Association, Global Prosperity Through Market Unification, Praeger, pp 214-217, 2002.
“The acceptance of a single world currency requires the renunciation of many nationalist pretensions, both symbolic and real. Whether the discussion relates to free trade the role of markets exchange rate arrangements, or other economic policies, unless there is serious democratically controlled global policy innovation, the outcome will likely be a situation where the devil takes the hindmost, as is currently the case. Economic management for a stable world that does not threaten its own survival requires us to begin in earnest on the next stage of institutional innovation: the reality of a world money and the institutional framework that goes with it. Annals of the American Academy, “Beyond the Tobin Tax: Global Democracy and a Global Currency.” Vol. 581, May, 2002.
“It is not just an academic idea. People like Paul Volker have argued that a global economy needs a global currency. Not a single currency, but a parallel international currency that can be used by everybody.” New Perspectives Quarterly, vol 20, #1, Spring 2002 (but the reported forum at the Milken Institute was in September 2002
“There is no doubt that a single currency monetary area offers important advantages over a monetary area in which multiple currencies remain. The single currency imposes quick adjustment day in and day out and does not leave time for large imbalances to build up. It rules out speculation about intraunion exchange rate changes. It is also true that the single-currency approach is more difficult to reverse. Moreover, transactions costs and information costs of trade in a single-currency area are much less than in a multicurrency union. These great advantages of the Delors-Masstricht approach must be acknowledged. As it is turning out, the approach adopted sems to have had unparalleled success. It has shown that some of the leading countries of Europe have lost the ‘barbarism’ noted by John Stuart Mill (1848) [see below] ‘that almost all independent countries choose to assert their nationality by having, to their own inconvenience and that of their neighbours, a peculiar currency of their own.’ It is quite another question, however, whether the European model will travel well. Without a complementary development of deeper political integration, other emerging currency areas would be better advised to exploit the advantages of credible currency-board-like arrangements centered around a hegemonic leader or else a parallel-currency arrangement linked firmly to one or more of the largest currency area.” “Monetary Unions and the Problem of Sovereignity”, in Annals, Vol 579, pp 123-152, 2002.
“One of the great puzzles of the modern world is why we have such enormous fluctuations in exchange rates among the major currency areas within which there is comparable price stability!… Elsewhere [Wall Street Journal, 3/3/2000] I discussed the possibility of a G-3 Monetary Union, not on the pattern of EMU, which is a single-currency monetary union, but with dollars, euros and yen remaining in existence. The formation of such a union would follow the same procedures adopted for creating the 11-currency monetary union of the EMU, but before the introduction of the single paper currency notes…. In the post-Cold War era, the three major currency areas could provided the leadership not only in mitigating harmful exchange rate instability among themselves but in asserting a leadership position with respect to the international monetary system- culminating, perhaps in a movement to create a new truly international currency…. The case for a world currency is an extension of the same logic that makes a national currency preferable to decentralized provincial currencies.. The advantages of a national currency over multiple provincial or municipal currencies are so obvious that older generations of economists took them for granted…. ” Currency Areas and International Monetary Reform at the Dawn of a New Century”, in Review of International Economics, 9(4), pp 595-607, 2001.
“This is a polar opposite of private currency: it postulates the emergence of a single global currency. This would be a logical consequence of a broad globalisation trend, a monetary translation of deepening economic integration. The example of the Euro demonstrates, even if some question how convincingly, the feasibility of a single currency in a multinational framework. It is interesting to note that another Nobel Prize winner, Robert Mundell, who played a major role in providing the conceptual underpinning for the euro, has more recently advocated creating a composite global currency, initially backed by gold. Thus, from the euro, the dollar and the yen could emerge the geo….. It is probably for this reason that this alternative has had a considerably lower profile than the private currencies one. However, over the next ten to twenty years the question of a global currency is more than likely to return to the top of the public policy agenda.” MONEY AND ECONOMY: ELECTRONIC MONEY AND INTANGIBLE ECONOMYby Charles Goldfinger Managing Director, Global Electronic Finance and Chairman, Financial Internet Working Group (FIWG). Opinions expressed in this paper do not constitute an official position of the European Commission or FIWG members. 2001
“Paul Volcker said in January this year that ‘if we are to have a truly global economy, a single world currency makes sense’. However, he immediately added that he would not live to see this single world currency” Source: Ms Sirkka Hämäläinen, Member of the Executive Board of the European Central Bank,, at conference at European Institute, New York, September, 2000. In Robert Mundell’s 2001 article in the Review of International Economics, above, he cites a similar statement, “As Paul Volcker has aptly put it, ‘A global economy needs a global currency.’ Why not?”
IMF Panel (transcript) on “One World, One Currency: Destination or Delusion?”
Max Corden: “What about the world? What will happen? Mainly because of the political constraints, the fact that countries will want to do their own thing, I don’t really see a world currency any time soon. I don’t think it’s feasible. I don’t really see how the adjustment burdens could be coordinated, or that there is a willingness to do that.” … The one argument that is qualitatively overwhelming is that it is a great advantage for Maryland and California to have one currency for trade and capital movements. Even if you can’t measure it, it can only be positive. It’s an inconvenience to have to change money and so on. And that’s the sort of thing that Bob Mundell bases all of his arguments on.”
Paul Masson: “So, to sum up, I see a world where currency use is increasingly dictated by private choice, not government fiat, where two major currencies – the U.S. dollar and the euro – will coexist, perhaps uneasily and in competition with each other, but there will also remain a slew of minor currencies. But I would say that the number of currencies will matter less because individuals will have greater options for hedging or choosing the currency in which to transact and will have less need to hold cash balances and hence are less likely to suffer the confiscation by inflation engineered by an irresponsible central bank. So, in conclusion, I think that the “one currency or many” question may be come somewhat less important than it may have been in the past, because there will be further potentially radical changes in the national use of moneys….. I’d just like to return in the one minute to Max Corden’s question which I think is the crucial one–is it desirable to have a single world currency? I would say the answer must be related to the question is it desirable to have a monetary policy that we can work with and effect economic activity and other things that are important. If one doesn’t believe monetary policy has those effects, clearly, there is no value, but I think most people do, and so there is some value to having the independent monetary policy that separate currencies allow.”
Bob Mundell: “But I don’t know anyone who has actually advocated a single currency for the world….. I couldn’t imagine a world democracy with a single currency. I couldn’t imagine that system. I don’t want to quibble with that language there, because I think it is a wonderful idea to raise consciousness about the importance of a world currency and I have been an advocate for a long time of a world currency, and my 1968 testimony to the Joint Economic Committee contained a plan for a world currency. And of course, I regard regional currency developments like the euro as sort of a second-best process. Whenever there is a political handle to latch on to, that gives some additional focus.
I think it is more interesting to talk about not “one world, one currency,” but “one world, one currency area,” defining a currency area as a zone of fixed exchange rates. I would define the gold standard not as a single currency but as a single currency area….
I think that if we think in terms of a world currency, there is no need whatsoever to have a single currency. I think you could only do that with a complete rupture or change in political circumstances – maybe if we were invaded by Mars, they might impose on us a single currency, but each country would still want to keep its own currency.
Let’s start at the end point. Suppose we did have a single currency in the world, a single currency maybe produced by the IMF, or it could be the U.S. dollar. Let’s take the U.S. dollar because that’s a little closer to reality than the IMF having a currency that covered the world. Suppose the U.S. dollar covered the whole world but that each country was a sovereign country. The whole world is dollarized. What would be the upshot of it? Would that be a stable relationship? I think not. It wouldn’t be stable because every country outside the United States would then want to go and create its own currency and gain the seigniorage from doing so.You don’t need to have a single currency in the world. Every country can have their own currency in the world, and you can still have the benefits of a common currency because you are all using the Canadian dollar, the Mexican dollar, et cetera, et cetera.
That would be a solution that would imply, because it is the U.S. dollar, some kind of domination, and that might not be acceptable to the world. Canada doesn’t want to dollarize with the U.S. dollar. Mexico doesn’t want to dollarize with the U.S. dollar. But they can gain the benefits from this to a large extent, or different dimensions of it. There are always different dimensions of currency unification, like the transparency of pricing, a common unit of account–better monetary policy is, of course, the ultimate payoff from it….
Well, we move forward to the question of what countries need to do when they form a currency area. Europe’s example has given us a lot of good lessons for it. There are five things you need to do when you form a currency area, and Europe has done all of these things. You need first of all to have a common target for monetary policy–it may be an inflation target. It has to have a common measure of inflation–EUROSTAT has created the Harmonized Index of Consumer Prices–you have to have the same index measuring inflation in each country. Then, you need to lock exchange rates, and then you need a common monetary policy, and then you need a system for dividing up the seigniorage.
That provides the framework, the ingredients, the tool kit, for creating a currency area. In order to do that, when you lock exchange rates, the countries that lock exchange rates don’t have any other monetary policy except that dictated by the head authority of the whole area.
So I think that there is a world of difference between a three-currency and a one-currency monetary union. Now, any kind of monetary union has to have either a single monetary policy or a coordinated monetary policy. IMF 2000 Forum “One World, One Currency: Destination or Delusion?”
Barry Eichengreen and Nathan Sussman
“How then is the international monetary system likely to look in 2020, when the question is seen from this vantage point? The historical perspective developed here does not suggest a high likelihood of radical changes in the system, such as a single world currency or three regional monetary unions centered on the dollar, the euro, and the yen…. This vision of the international monetary architecture in the year 2020 suggests that the currency conundrum will not be solved by some grand design adopted at a new Bretton Woods Conference. It will be solved in a market driven fashion, with arrangements evolving in different ways in different parts of the world. Looking even further down the road, it is possible to envisage more radical outcomes. But this is something for future generations to write papers about.” IMF Working Paper “The International Monetary System in the (Very) Long Run”, 2000.
"In his keynote address, James Tobin of Yale University said a fixed exchange rate is intrinsically fragile, and it was hard to understand why developing countries still clung to fixed or pegged exchange rates. He scoffed at recurring nostalgia for a fixed rate system, countering that floating rates should be credited with accomplishing economically desirable revaluations without currency crises. A single global currency might offer a viable alternative to the floating rate – but not soon, and not without its own problems, according to Tobin." ("IMF Survey", Volume 27 Number 9, May 11, 1998)
Robert Guttmann as presented by James K. Galbraith in Book Review.
Review of: How credit-money shapes the economy, The United States in a global system by Robert Guttmann: Galbraith, James K. (Reviewer) Two penultimate chapters are devoted to the question of institutional monetary and economic policy reform. As Guttmann writes, “we confront the issue of international monetary reform without any of the known options having proved themselves to be workable in the long run” (p. 385). But he makes the case, anyway, for a new global money. In line of descent from Keynes’ Bancor plan, the SDR, and the ECU, Guttmann proposes a “supranational credit money” (SNCM) that would work provisionally as the “international extension” of national credit monies. In contrast to Bancor and SDRs, however, SNCM (essentially, lines of credit issued by an international monetary authority) would be used for all current and capital account transactions. Guttmann envisages SNCM as a first step toward the adoption of a single global currency." Journal of Economic Literature; 33(4), December 1995, pages 1989-1990.
"International monetary reform is necessary, because the system we have now in place is flawed. The use of national credit-money as world money is an inherently unstable arrangement. On their own, dollars, yen and other key currencies represent fully effective money only at home, within the country of their issue." (p 427).
[As he wrote his book in 1994, before the 1999, 2002 adoption of the euro he did not have the advantage of seeing its success in collapsing 12 currencies into one. As an interim step toward a single global currency he proposed a new form of credit-money, the SNCM (SupraNational Credit Money) and wrote] "Rather than reaching for the most difficult and utopian version, the introduction of a single currency for the entire world economy, it would be much more realistic to conceive of this new form of world money [the SNCM] as used soley in international transactions between countries. This kind of arrancgement allows national currencies to exist but confines them to strictly domestic circulation for transactions within their countries of issue. This was precisely the basic idea behind the plan Keynes put forward at the Bretton Woods Conference. But, unlike his Bancor proposal, the supranational credit-money (SNCM) of the future should function fully as money. (p 431)
"…national central banks will keep reserve accounts with an international monetary authority (IMA) which issues the SNCM, accompanied by equvalent domestic currency payments to and from individuals….. In sum, international payments are made by and to individual market participants in their own currencies, complemented by transfer of SNCM-denominated funds between countries." (p 432).
"Our SNCM proposal, even though surely a radical break with existing international monetary arrantements, may itself be only an intermediate stage on the journey toward the ultimate level of monetary integration – the adoption of a single currency for all (domestic and international) transactions wordwide. We still have a long way to go before this idea can become reality. But eventually, perhaps in a generation or two, the globalization of economic activity may have reached such a degree as to make national currencies obsolete." (p. 444)
HOW CREDIT MONEY SHAPE THE ECONOMY – The United States in a Global System, by Robert Guttmann, 1994, M.E. Sharpe.
“…I suggest a radical alternative scheme for the next century: the creation of a common currency for all of the industrial democracies, with a common monetary policy and joint Bank of Issue to determine that monetary policy. Individual countries would be free to determine their fiscal policy actions, but those would be constrained by the need to borrow in the international capital market…. Exchange rates can be most credibly fixed if they are eliminated altogether, that is, if international transactions take place with a single currency. But a single currency is possible only if there is in effect a single monetary policy, and a single authority issuing the currency and directing the monetary policy. How can independent states accomplish that? They need to turn over the determination of monetary policy to a supranational body, but one which is responsible collectively to the governments of the independent states…. This one-currency regime is much too radical to envisage in the near future. But it is not too radical to envisage 25 years fro now, and indeed some such scheme, or its functional equivalent, will be necessary to avoid retrogression into greater reliance on barriers to international trade and financial transactions.” Foreign Affairs, Fall 1984, pp. 166-184
“What has come to be known as the Tobin Tax on foreign exchange transactions originally appeared in a lecture presented by James Tobin in 1972 and was developed more fully by him in 1978…..Given the recent interest in the Tobin Tax, it is appropriate to remind the reader that he offered it “regretfully” as a second best. The first best solution being “a common currency, common monetary and fiscal policy, and economic integration.” As noted in “International Taxation: The Trajectory of an Idea from Lorimer to Brandt” By Myron J. Frankman World Development 24 May 1996, 2000
John Maynard Keynes
[Bancor proposal at Bretton Woods conference in 1944. Text to be added later]
John Stuart Mill
“Let us suppose that all countries had the same currency, as in the progress of political improvement they one day will have… So much of barbarism, however, still remains in the transactions of the most civilized nations that almost all independent countries choose to assert their nationality by having to their own inconvenience and that of their neighbors, a peculiar currency of their own." Principles of Political Economy, 1865, as cited by Myron Frankman, above in “Beyond the Tobin Tax”.