Could a single global currency work?

Yes

1 of 17

by Michael Greaney

• 

Write now Print Invite a writer™ Add to Favorites RSS Feed Contact this writer

The idea of a single global currency is not only feasible in our day and age, it has been effectively implemented a number of times in the past. Any numismatist - "coin collector" - can rattle off examples of currencies that functioned as global media of exchange without batting an eye.

The Athenian "owls" (Drachma) either circulated as currency or trade items throughout the ancient world, reaching as far as India, and serving as a standard of value in the civilized (i.e., Greek) world. The Tetradrachms (Four Drachma pieces) of Alexander the Great circulated everywhere with the same design for centuries after the conquerer's brief career. The Roman Denarius was the standard and model of Europe's monetary system after the reforms of Pepin and Charlemagne until the last vestige was abolished in 1970 with England's decimalization - and even then retained the old name of "pound," derived from a Roman pound of silver, divided into 240 "pennyweights." The Spanish "Piece of Eight" (8 Reales of 12-1/2 cents) was found everywhere, and was the basis for the "quasi-decimal" system of the United States. The British Sovereign of .2354 ounces of gold served as a global currency until c. 1927, when it was largely replaced by the United States dollar.

The problem is obviously not whether a single global currency could work. It already has, to all intents and purposes. The question is whether a global currency could be managed properly, without any one country or group of countries having the power or ability to manipulate things to its or their advantage and the disadvantage of others. The Prussian National Bank, which managed to seize near-total control of the finances of the Holy Roman Empire and the Confederation of the Rhine after the decline of Austria and the establishment of the Zollverein provided Bismarck with a powerful and effective means of achieving his goal of Prussian domination of a unified Germany under the Second Reich. Bismarck's manipulation of the attempts to achieve a uniform currency throughout all the Germanies meant that Prussian militarism, instead of Bavarian federalism or Austrian imperialism would set the tone for the unification of Germany, and prepare the stage for Hitler.

A uniform global currency can be a valuable tool in countering the ill effects of globalization, just as it can be used to allow a small elite or a single country to dominate others. To ensure that a global currency works properly for the benefit of all the people in the world, not just a select few, some reforms in international as well as national banking and finance are essential:

1. It is not necessary to establish a single central bank for the world. It may, in fact, be a bad idea - a monopoly on anything is rarely good. Instead, using the model provided by the central bank of the United States, the Federal Reserve System, a "regional" central bank or banks can be established for each country. All currency issued by all the regional central banks - while legally an obligation of that bank alone - would have to pass "at par" with the currencies of all other central banks, and pass everywhere without the imposition of exchange charges, surcharges, or tariffs. The United States, contrary to popular belief, does not have one uniform currency, it has thirteen separate currencies, all of which pass at par with the others. These are the issues of the twelve Federal Reserve Districts, and a special issue, discernible by red serial numbers and seals, called "United States Notes" that are required by law to be maintained in circulation, and are nominally backed by gold ... which you cannot obtain in exchange for the notes, which pass as ordinary Federal Reserve Notes, regardless what it says on the note!

2. Governments must be prohibited from being able to have their debt instruments purchased by any central bank with money created for the purpose. This allows them to circumvent the appropriations process and removes the accountability to the public inherent in any tax. This is, admittedly, the way that most currency gets into circulation these days, but it is directly contrary to the stated purpose of most central banks, even illegal - which doesn't stop governments from getting around the law. The Federal Reserve, for example, is legally prohibited from purchasing debt paper directly from the government. In order to be able to affect reserve requirements of commercial banks, however (which are legally required to hold their reserves only in the form of cash or government bonds), the Federal Reserve has to be allowed to purchase "secondary" government issues on the "open market." This means that, while the Federal Reserve cannot purchase bonds directly from the government, it can purchase bonds from traders who hold them for a microsecond or so, turning the prohibited "primary" issues into legal "secondary" issues. Most central banks manage to skirt the intent of their enabling laws in similar ways.

3. All currency and demand deposits created must only be created to purchase financially feasible loans made by commercial banks to form private sector capital, not fund government or consumer expenditures. If the commercial banks were to institute a 100% reserve requirement (similar to the "Chicago Plan" proposed in the 1930s), there would be no danger of the "multiplier effect" being manipulated by commercial banks or governments to create unbacked currency to compete with the currency or demand deposits backed by private sector assets instead of government debt.

4. All new capital formation (that is, all new capital formed in excess of what is needed to replace existing assets as they wear out) must be financed in ways that create new owners, not concentrate ownership of the new capital in the hands of the currently wealthy. This will increase incomes across the board without taking anything away from the currently wealthy, who can be left secure in their existing accumulations.

These principles - and others, derived from them intended to support their implementation and maintenance - are necessary to the economic and political feasibility of any single global currency. Without these essential principles being embodied in the operation of the commercial and central banking systems of the world, it will be possible to manipulate any global currency for the benefit or advantage of a few, instead of using the uniquely social good of money and credit for the good of everyone in the world. As Henry C. Adams noted in 1898, manipulation of money and credit through unwise government spending or borrowing is the surest way to undermine and finally destroy the sovereignty of nations. Run in a manner consistent with the above principles, a global currency would enhance national and, especially, individual sovereignty. Managed in a way that simply continues current central bank policies and financing techniques, the result of a global currency would be oppression and tyranny.

Learn more about this author, Michael Greaney.
Click here to send this author comments or questions.