by Evan Lee

Created on: August 12, 2008

De facto world currencies have existed for hundreds of years, as far back as the storied "pieces of eight" or silver Spanish dollars which found use in Spanish territories in the Americas and Europe and possibly even Asia. Many countries continue to either peg the value of their local currencies to powerful currencies such as the U.S. dollar, the Euro, and Japanese yen, and some even go so far as to use these currencies exclusively in favor of printing their own. Obviously these governments which elect to integrate themselves into a larger currency system rather than creating their own local currency see some sort of advantage associated with tying their economy to a stable currency, despite sacrificing direct control over inflation and other localized economic concerns. The question that is currently discussed among theorists and policy-makers is whether the model of multinational currency set forth by the European Union could extend to the entire world. While the model put forward by the EU certainly has some drawbacks, some of which may be exacerbated by the expansion of this model to include even greater geographic and language barriers, the advantages would not only provide for economic growth and prosperity, but would also promote humanitarian goals. As the world becomes more economically interdependent, it becomes more and more necessary for members of the global community to be concerned with affairs far removed from their own backyards. The trade benefits and economic security provided by a global currency, as well as the necessity of promoting economic health in all parts of the world to maximize returns on this policy more than justify the risks associated with such a program.

For the purposes of this article, I will focus primarily on the work of Robert Mundell and his premise of the "optimum currency area," to determine the viability of a single global currency. An optimum currency area, in simple terms, is a geographic area or region that would most benefit from sharing a single currency. Obviously most systems of currency work under the assumption that these geographic regions would be bounded by national borders, but this assumption often does not withstand much scrutiny. Many would argue that the United States, for example, is so large and that different regions have such dissimilar economies, that the eastern and western United States could benefit from having different currencies and thusly different interest rates and exchange rates. Further,

• 1
• 2
• 3
• Next Page >>