The single global currency was first proposed by the Italian, Scaruffi, in the 1500’s. At the time there were no nation states in the world and coins were minted by those people and organizations who could afford them. It’s been said that at one point, Spain had 150 different coins circulating. Paper money was in very limited use anywhere in the world.
Since that time the formation of nation states led to national monopolies of currency production and distribution. With the liberation of most of the world’s territory from colonialism, the number of currencies continued to grow. Until the adoption of the European euro, there were approximately 200 currencies in use. After January 1, 2002, there were 11 fewer currencies (12 – 1).
Whenever two people or organizations with different types of money wanted to exchange value, for example by one wanting to buy something and one wanting to sell, the problem of exchange rate arose. What would a coin in one currency purchase of value in a good which already priced with another currency? This problem multiplied and now we have over a trillion dollars a day being traded among currencies.
Even before the numbers rose that large, people understood that exchange rates were a problem. Every foreign exchange transaction costs money. For example, if a tourist wants to buy an Italian bottle of wine with dollars, the tourist has to purchase euros first, and a financial institution will charge a small percentage. With the use of computers, this transaction cost has declined, but it adds up.
Another cost of foreign exchange differentials is the risk that a currency may fail or super inflate, making it useless to its holders and users. To protect against that risk, consumers need to buy some form of forward contract in currency to hedge against the risk; and that can be very expensive. Most holders of failing currencies are forced to suffer, as they are not able to take necessary protective action.