by Samuel Ringoringo

Created on: May 16, 2008

Single global currency which is mostly regarded as global monetary union has been dreamed and pursued by many developed countries since It is believed to bring pluses such what Baldwin (1991) has stated as elimination of transaction cost, improved allocation of common market capital, intensified cross-border competitive pressures, higher efficiency of corporate ownership, and increased output as result of reduced and converged inflation rates.

The basic idea of monetary union is simply the same with what inside David Ricardo's theory of free international trade. It expects the efficient cross-border economy activity which ends up in optimum price to be resulting in welfare gains. Interestingly, the application of those two similar basic idea approaches, so far, have met similar result where Maastricht agreement is the only one that have pronely succeeded so far to form what is well-known as European Union.

Let's turn our mind into the basic rationale: when a concept is hard to apply, it simply because it's costly. The basic idea of monetary union is good and the purpose is good as well, however it would cost as much as its benefit. You might think that one global currency will give you so many benefit where as the basic you'll never be exposed of foreign exchange risk. Thus, single global currency will be resulting stable world economy, and even break the impossible trinity theory of fixed exchange rate-free capital mobility-independent monetary policy. Is that true?

The answer is actually simple since regardless the complexity of reality, yes it is true, while it would simply change if the complexity of reality brought in to the consideration. The first problem is conversion. Since multi currency has been ending up in different value of each of them, it is really a long way to go to find the most appropriate value of each currency so than they can be converted smoothly. Some empirical studies have been applied to model and measure the most appropriate technique, and yet, they're still far from what is expected.

Secondly, it should be taken to fundamental consideration that monetary union is not merely as an economic approaches, but it also comprises political aspects. Means that monetary union can't be separated from political unification (see De Grauwe, 1984,1989,1992). And this is the real challenge that put single global currency concept into what i call with "costfull list of idealism". Furthermore, in political aspects, there are culture, preferences, level of satisfaction, and even pride of a nation that impossible to be handled in short of time.

It might be better for us to reconsider the basic concept of Economic integration brought by David Ricardo's theory of free international trade which according to Him, if a country could produce everything more efficiently than another country, it would reap gains from specializing in what it was best at producing and trading with other nations. (Case & Fair, 1999: 812818). Unfortunately this dream would be properly stated as a utopia than a vision. There is no doubt that Ricardo's theory which later was reformulated by Heckscher and Ohlin is absolutely right: that it would be more efficient for each single country to produce what is best at producing and trade it.

However, this is just a theory where like a single trend line behind the complicated scattered dots, it could only be what it should be if only those scattered dots have wiped away.

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