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2003, June: Robert L. Bartley, Wall Street Journal

“Thinking Things Over / World Money at the Palazzo Mundell”

"Santa Colomba, Italy – At this rural crossroads a short cab ride outside Siena’s medieval gates, the question of the day is: “Does the Global Economy Need a Global Currency?”

“Yes,” declares former Federal Reserve Chairman Paul Volcker, adding that the 15 or so onlookers here are maybe half the people in the world willing to entertain the idea seriously. They include former Israeli central bank head Jacob Frenkel, former Argentine Finance Minister domingo Cavallo and currency-board champion Steve Hanke. They’ve been gathered by Nobel Prize economist Robert Mundell for his 10th Santa Colomba Conference.

The first conference was held in 1971, three weeks after President Nixon’s August 15 announcement severing the link between the dollar and gold and breaking up the Bretton Woods international monetary system. This was also two years after young Professor Mundell spent $20,000 to buy the five-story limestone castle once owned by Pandolfo “Il Magnifico” Petrucci, who ruled Siena from 1487 until his death in 1512. Filled with endless shelves of books, it’s now Palazzo Mundell, home and personal conference center for a man who’s influenced the world not by Petrucci’s notorious treachery and violence, but by the force of ideas. Mundell ideas motivated both the Reagan administration economic policies in the U.S. and the advent of the euro on this side of the Atlantic.

And if the euro can replace the franc, mark and lira, why can’t a new world currency merge the dollar, euro and yen? The euro’s recent recovery against the dollar almost certainly establishes its credibility as a permanent currency. While major eurozone economies remain troubled, practically no one so far is blaming the European Central Bank.

This suggests success for the grandest reform of all, a supra-national central bank. The ECB Executive Board and Governing Council could yet become political targets, of course, especially if much-discussed deflation actually sets in. But even with strikes in Germany and France, few politicians seek a way out in a little more inflation or currency depreciation; few complain about the loss of “monetary sovereignty”.

World money, with a world central bank, seems a next logical step. The small band of dreamers decamped to the hills of Tuscany has always been skeptical of prevailing wisdom that the answer to all exchange-rate problems is “float”. The euro was introduced at $1.15 to the dollar on Jan. 1, 1995, floated to below 83 cents in October 2000, and floated back to $1.18 this spring. In four years, that is, down 31% and back up 44%, with no obvious economic fundamentals to explain the float, er, gyrations.

In theory such monetary gyrations will disturb the real economy, and for whatever reason the years 1999-2003 have indeed been peculiar ones, with a tech-stock “bubble,” a stock-market crash and a grudging world recovery. Over this time, too, U.S. monetary policy has tended toward the hyperactive, with the Fed tightening in 1998, easing dramatically in 2001 and just now cutting its open-market interest rate to an all-time low.

It’s not easy to tease out the skein of causation connecting these events, but we do know from history that changes in the international monetary order have powerful effects, economic and often political. The Bretton Woods system of fixed exchange rates provided an international monetary stability that helped rebuild the world after World War II, for example. Its breakdown led to a decade of world inflation, an “energy crisis” and war in the Middle East.

With the advent of the euro, the world has evolved a system of currency blocs. The dollar and euro zones are perhaps each large enough not to be overwhelmed by currency changes – or at least, say, to delay the inflationary impact of the recent decline in the dollar. But, around the world small and open economies – Argentina, for example, – suffer profound economic and political shocks when the two currencies in which they trade gyrate by 30% or 40%.

For such nations in particular, the Mundell view stresses that floating exchange rates, recently a standard prescription of the International Monetary Fund, are not a policy but the lack of a policy. Under fixed rates, the central bank of a small nation devotes monetary policy to targeting the exchange rate with a larger neighbor; this is a policy. But a “float” simply takes away the anchor; for a policy you need another target – historically the price of gold, more recently some measure of the domestic inflation rate.

Under the second Bush administration, the United States has set out to establish itself as a positive force for order in the world, but it has been uninterested in the non-military side of world power, in particular the monetary leadership exercised so successfully by the U.S. during Bretton Woods or Great Britain during the 19th century. A world money would be an extraordinary boon to international stability.

When the U.S. gets ready to seize world leadership, Bob Mundell has a plan, based on the euro and looking toward the year 2040. To wit, all currencies convertible into an international money, the dey (dollar, euro, yen) or perhaps the intor. The supply of this currency under supervision of an international board; monetary gains from its issue split along IMF quotas.

As the Palazzo Mundell finale, he gave a banquet suitable for “Il Magnifico” with a suckling pig turning on an open spit and diners seated at a table guarded by twin suits of armor. He’ll take his latest Santa Colomba conclusions to the IMF meeting in Dubai in September. Could it happen that his ideas will reach beyond a few dreamers in Tuscany to the real world? Well, with supply-side tax cuts and the euro, I’ve seen it happen twice before. The Wall Street Journal OPINION Monday, June 30, 2003,


2003, Spring: John Roberts, Vanguard Online, UK.
“A single world currency?”

"Having jumped on the ideological bandwagon of globalisation to the extent that he feels a world federal government is imminent, John Roberts considers the issues that arise when considering the creation of a world currency.

There has recently been some suggestion of the need for a global currency, and the discussion that ensued seemed to show certain difficulties in coming to grips with the question. That was probably because the first essential of any currency, if it be not of full value, i.e. gold, silver or some other desired commodity, is trust. That trust in the value of the circulating currency must be felt by users in the issuing authority, be it a bank, a government, or even a private concern.

That is why a hand-written IOU issued by someone who is trusted by the recipients can be used among consenting adults as currency and why the prettiest printed currency-note will be refused if people suspect the bank of being on the point of bankruptcy. Or worse, very often, if they think that the government in power is likely to default on its debts. Which is why such countries as Russia today are subject to periodic fears of sudden and rapid inflation, that lead to waves of panic and consequent economic chaos.

The point about all these rather elementary facts for the world at large is that no global currency could function unless and until an issuing authority – international bank or other institution – had the confidence throughout the world that its currency would be sound. In the present circumstances, it is not likely that any institution merely underwritten by the United Nations would secure that confidence. How else could it be gained?

The alternative might be that one country – with only the United States in contention at present – could provide the stability and financial strength to offer the backing for a currency. And indeed that is very much what has occurred in past years when the almighty dollar has functioned at times as a quasi-global currency, although it was then largely excluded from the area controlled by the Soviets and from China, with a fifth of the world’s people. But the manipulations of the US government of other institutions and countries in order to maintain American interests and the obvious disadvantages to other economies make such dominance extremely suspect and unacceptable.

Hence we come to the need for an alternative. That could only be a strong, acceptable and financially sound … world federal government — that would have to rely on the democratic support of the majority of the people of the world. And it is likely that the last area of their consent that the diverse peoples of the world will give is such an institution is economic and financial. They may well accept the need for government to ensure an end to war and international violence. Whether that will automatically lead them to wish to surrender their power to decide economic issues affecting their own.lives may be doubted.

Because a capitalist system that relies on ‘enlightened’ self-interest on the part of those who live in a free market has one or two defects, of which the most glaring is the tendency to increasing difference between the richest and the poorest. That characteristic will probably prevent any world federal government getting full agreement to a world currency without a commitment to a degree of equalization of wealth that will be unattractive or repugnant to the rulers of our global economic and financial system, who have never shown themselves notably generous to the poor and oppressed.

The lessons of the European Union, where after thirty years of groping for a closer union and a more equal sharing of wealth, the move to a common currency is still not assured, are instructive. Clearly the world as a whole is far less united and far less politically ready for a similar change. So it is likely that a world currency, with its concomitants of greater economic and financial equality, will be the last stage in the process of global unity, not one of the first."

Taken from the John Roberts World News Letter  As reproduced in “Vanguard Online”, the “U.K.’s leading crucible of post-modern culture.”


1999, Reginald Dale, International Herald Tribune

The ‘End of Economics’? It’s Not That Simple – MONEY

“Some people, such as the 1999 Nobel economics prizewinner, Robert Mundell, are already talking happily of a single global currency and central bank.

That is a non-starter for now. Just think of the United States allowing its interest rates to be set by a bank, chaired by a foreigner, of which more than 200 other countries were members. But it is a fair bet that the number of world currencies will decline in the years ahead and that further progress will be made toward global free trade.” December 3, 1999.

1999 Christian Science Monitor

"A new merger: the dollar, yen, and euro?"
by David R. Francis

"Finance experts from 14 nations discuss the merits of a single currency

Dateline: CHATHAM, MASS.

Europe, Japan, and the United States will all have a common currency at
some point.

Not now, says Richard Cooper, an economist at Harvard University,
Cambridge, Mass. It is not politically realistic. Rather, in a decade or

Mr. Cooper sees a common currency as a logical way to deal with the
fragility and fickleness of financial markets. Over time, this shakiness
could worsen. One reason is that financial transactions between nations,
as versus trade, will dominate foreign-exchange markets even more than
they do today.

A currency union would eliminate foreign-exchange volatility in these
three industrial areas, which produce two-thirds of the world’s output.
It would add stability to what is fast becoming a global economic
system. It would facilitate trade and investment.

Cooper tossed out the idea at a conference here on "Rethinking the
International Monetary System," put on last week by the Federal Reserve
Bank of Boston.

The timing was appropriate. At the end of this week, there is a summit
of the Group of Eight in Cologne, Germany. Kosovo promises to be the
hottest topic on the agenda of President Clinton and the leaders of
Germany, Japan, Britain, France, Italy, Canada, and Russia.

But the leaders will also look at what can be done to make the global
system less crisis prone.

They may peek briefly at whether private financial institutions in rich
countries should be required to help pay for losses emerging nations
incur during a crisis. It’s not likely.

Also on the table: Whether the International Monetary Fund should be
strengthened to become a genuine "lender of last resort" in an
international crisis, much the way a national central bank will rescue
an important domestic bank in financial jeopardy. Not likely either.

But they are likely to move ahead with greater debt relief for the
world’s poorest nations, most of them in Africa.

Experts at the Fed conference, coming from 14 nations, do not expect the
Eight to make major changes in the architecture of the international
financial system anytime soon.

"What we are going to see is tinkering at the margin," says Sebastian
Edwards, an economist at the University of California, Los Angeles.

What’s more probable, says Mr. Edwards, will be changes by individual
nations. Some will impose controls on short-term capital movements. More
countries will "float" their currencies, that is, let their value in
relation to the US dollar and other currencies be determined by sales
and purchases on the foreign exchange market. Currencies worth trillions
of dollars trade on that market every day.

Also, more nations will attach their currencies to the dollar, the euro,
or the yen through what are known as "currency boards." And some will go
whole hog and "dollarize," that is, replace their own currency with the
US dollar.

Panama already uses the dollar as its currency. In Argentina, the dollar
is legal tender and widely used along with the peso. A currency board
keeps the value of one peso fixed to one dollar.

There has been considerable discussion in Argentina about going fully
with the dollar and abandoning the peso.

Pedro Pou, Argentina’s top central banker, complained here that despite
eight years of a relatively inflation-free peso, it is still not "a true
national currency." People, citizens or foreigners, are reluctant to
borrow long-term in pesos, still remembering years of hyperinflation.
This raises the cost of capital used to develop the nation.

Full adoption of the US dollar, he says, would improve Argentina’s
economic performance over the next 10 years.

One theory is that currency blocs will form around the dollar, the euro,
and the yen. Then the three currency "biggies" would merge into a single

Cooper sees the creation this year of the euro by 11 European nations as
a major step in the direction of a single currency for the industrial

But Paul Volcker, former chairman of the Federal Reserve, doubts that
any step will end financial crises, as long as greed, fear, and hubris
are "built into the human genome." It is these characteristics that are
behind crises. "
Source: Christian Science Monitor; 6/14/99, Vol. 91 Issue 138,


1998 The Economist

One World, One Money

A global currency is not a new idea, but it may soon get a new lease of life…

So here is an idea: global currency union. Let nobody call it boringly feasible, or politically expedient. Yet, like all the best unthinkable ideas, it has more going for it than you might think-in principle, at least. The idea is not new. Richard Cooper of Harvard University proposed a single world currency in Foreign Affairs in 1984, and he was not the first to think of it. It seemed an outlandish idea, and still does….

If it [the euro] succeeds, the case for a global currency union will seem much more interesting. Fine, you say, but how would the world ever get from here to there? Hard to say, admittedly. Find the answer to that and the idea would be thinkable. Editorial, “One world, one money” September 26th-October 2nd, 1998


1998 “Global Market With Single Currency Needed”

By Benjamin Furleigh

This past summer the Asian Financial Crisis dominated many of the headlines across the country and led to a year with the highest number of layoffs. According to an “Asian Economies Report” by the Washington Post the Asian Financial Crisis began with Asian governments emulating Japan successes by protecting their major industries and providing financial guarantees to boost exports. This led to Asian businesses taking larger risks, ignoring market signals and investing in non-profitable sectors. In July 1997 Thailand allowed its currency to float freely causing its devaluation and making its exports cheaper compared to neighboring countries. To compete those countries devalued their currencies, which automatically increased the debt owed by companies within their boundaries. Plummeting Asian stock markets were the next result of the currency meltdown caused by a huge retreat of foreign money. Devalued Asian currencies make their products and services more affordable to U.S. consumers. This coupled with the concern that U.S. companies’ profits would be affected by weak Asian demand, due to almost $1 trillion in bad Japanese bank loans, led to U.S. stocks getting hit hard this summer.

When the news broke this summer of the impact of the Asian Financial Crisis it sent politicians scrambling to find a fix to this mess. A global market with a single currency would’ve eliminated at least half of the economic chaos mentioned above. With respect to the other half there’s not a lot any government agency can do to protect against foreign banks making stupid decisions. Presently, the variability of currencies on the international exchange market can determine how successful a country’s trade is worldwide. A weak currency enables a country to sell more of what it makes to other countries. A strong currency makes it cheaper to buy more of what other countries make. Currency Exchanges and their variability need to be removed from the global market equation. Currencies were never meant to be bought and sold on exchanges like commodities. Their only purpose was to speed up trade. In a world with one currency the goods and services traded is based strictly on their quality and price.

Europeans have figured out the advantage of one currency. On January 1 of next year the European Monetary Union’s 15 nations will adopt a single currency. Exchange rates will be frozen until Euro bills and coins will be issued in 2002. Euroland will become the world’s largest trading power, accounting for 18.6% of global commerce or slightly more than the U.S. If done right the expected result is better goods and services for consumers and increased trade for businesses. Asians would be wise to follow the same course. The more countries that get together and adopt a single currency the easier it will be to end up with a single global currency.  Mason City Globe-Gazette (Iowa, U.S.) December 6, 1998, Mason City Iowa


1988 The Economist

Title of article: Get Ready for the Phoenix
Economist ; 01/9/88, Vol. 306, pp 9-10

"THIRTY years from now, Americans, Japanese, Europeans, and people in many other rich countries, and some relatively poor ones will probably be paying for their shopping with the same currency. Prices will be quoted not in dollars, yen or D-marks but in, let’s say, the phoenix. The phoenix will be favoured by companies and shoppers because it will be more convenient than today’s national currencies, which by then will seem a quaint cause of much disruption to economic life in the last twentieth century.

  At the beginning of 1988 this appears an outlandish prediction. Proposals for eventual monetary union proliferated five and ten years ago, but they hardly envisaged the setbacks of 1987. The governments of the big economies tried to move an inch or two towards a more managed system of exchange rates – a logical preliminary, it might seem, to radical monetary reform. For lack of co-operation in their underlying economic policies they bungled it horribly, and provoked the rise in interest rates that brought on the stock market crash of October. These events have chastened exchange-rate reformers. The market crash taught them that the pretence of policy co-operation can be worse than nothing, and that until real co-operation is feasible (i.e., until governments surrender some economic sovereignty) further attempts to peg currencies will flounder.

  But in spite of all the trouble governments have in reaching and (harder still) sticking to international agreements about macroeconomic policy, the conviction is growing that exchange rates cannot be left to themselves. Remember that the Louvre accord and its predecessor, the Plaza agreement of September 1985, were emergency measures to deal with a crisis of currency instability. Between 1983 and 1985 the dollar rose by 34% against the currencies of America’s trading partners; since then it has fallen by 42%. Such changes have skewed the pattern of international comparative advantage more drastically in four years than underlying economic forces might do in a whole generation.

  In the past few days the world’s main central banks, fearing another dollar collapse, have again jointly intervened in the currency markets (see page 62). Market-loving ministers such as Britain’s Mr. Nigel Lawson have been converted to the cause of exchange-rate stability. Japanese officials take seriously he idea of EMS-like schemes for the main industrial economies. Regardless of the Louvre’s embarrassing failure, the conviction remains that something must be done about exchange rates.

  Something will be, almost certainly in the course of 1988. And not long after the next currency agreement is signed it will go the same way as the last one. It will collapse. Governments are far from ready to subordinate their domestic objectives to the goal of international stability. Several more big exchange-rate upsets, a few more stockmarket crashes and probably a slump or two will be needed before politicians are willing to face squarely up to that choice. This points to a muddled sequence of emergency followed by a patch-up followed by emergency, stretching out far beyond 2018 – except for two things. As time passes, the damage caused by currency instability is gradually going to mount; and the very tends that will make it mount are making the utopia of monetary union feasible.

The new world economy

The biggest change in the world economy since the early 1970’s is that flows of money have replaced trade in goods as the force that drives exchange rates. as a result of the relentless integration of the world’s financial markets, differences in national economic policies can disturb interest rates (or expectations of future interest rates) only slightly, yet still call forth huge transfers of financial assets from one country to another. These transfers swamp the flow of trade revenues in their effect on the demand and supply for different currencies, and hence in their effect on exchange rates. As telecommunications technology continues to advance, these transactions will be cheaper and faster still. With unco-ordinated economic policies, currencies can get only more volatile.

  Alongside that trend is another – of ever-expanding opportunities for international trade. This too is the gift of advancing technology. Falling transport costs will make it easier for countries thousands of miles apart to compete in each others’ markets. The law of one price (that a good should cost the same everywhere, once prices are converted into a single currency) will increasingly assert itself. Politicians permitting, national economies will follow their financial markets – becoming ever more open to the outside world. This will apply to labour as much as to goods, partly thorough migration but also through technology’s ability to separate the worker form the point at which he delivers his labour. Indian computer operators will be processing New Yorkers’ paychecks.

  In all these ways national economic boundaries are slowly dissolving. As the trend continues, the appeal of a currency union across at least the main industrial countries will seem irresistible to everybody except foreign-exchange traders and governments. In the phoenix zone, economic adjustment to shifts in relative prices would happen smoothly and automatically, rather as it does today between different regions within large economies (a brief on pages 74-75 explains how.) The absence of all currency risk would spur trade, investment and employment.

  The phoenix zone would impose tight constraints on national governments. There would be no such thing, for instance, as a national monetary policy. The world phoenix supply would be fixed by a new central bank, descended perhaps from the IMF. The world inflation rate – and hence, within narrow margins, each national inflation rate- would be in its charge. Each country could use taxes and public spending to offset temporary falls in demand, but it would have to borrow rather than print money to finance its budget deficit. With no recourse to the inflation tax, governments and their creditors would be forced to judge their borrowing and lending plans more carefully than they do today. This means a big loss of economic sovereignty, but the trends that make the phoenix so appealing are taking that sovereignty away in any case. Even in a world of more-or-less floating exchange rates, individual governments have seen their policy independence checked by an unfriendly outside world.

  As the next century approaches, the natural forces that are pushing the world towards economic integration will offer governments a broad choice. They can go with the flow, or they can build barricades. Preparing the way for the phoenix will mean fewer pretended agreements on policy and more real ones. It will mean allowing and then actively promoting the private-sector use of an international money alongside existing national monies. That would let people vote with their wallets for the eventual move to full currency union. The phoenix would probably start as a cocktail of national currencies, just as the Special Drawing Right is today. In time, though, its value against national currencies would cease to matter, because people would choose it for its convenience and the stability of its purchasing power.

  The alternative – to preserve policymaking autonomy- would involve a new proliferation of truly draconian controls on trade and capital flows. This course offers governments a splendid time. They could manage exchange-rate movements, deploy monetary and fiscal policy without inhibition, and tackle the resulting bursts of inflation with prices and incomes polices. It is a growth-crippling prospect. Pencil in the phoenix for around 2018, and welcome it when it comes."

1987, "Seething seas of world trade break world calm"

Christian Science Monitor, 29 June 1987

"John Yemma, Staff writer of The Christian Science Monitor Hamburg For 16 years – ever since the Bretton Woods monetary agreement was scrapped by President Nixon – financial gales have howled through world trade. Disturbed by the insecurity, some financiers speak of a need to return to the gold standard. Others suggest the creation of a single world currency or a world central bank. Everyone wants more stability. And slowly that seems to be occurring. Leaders of the key industrial nat…"

(Summary from Christian Science Monitor web site.  Full article may be purchased directly.)