World currency

As a world currency, the abstract idea of ​​a globally applicable currency is understood, with which some economists want to see replace the current monetary and exchange rate system.

During the conference of Bretton Woods in 1944 the idea of ​​a world currency in the main plans for a post-war monetary system played a major role. The British plan, particularly Keynes plan was the world currency Bancor. Also, the official American plan, particularly Whites plan, contained the idea of ​​a world currency called " Unitas ". However, the American negotiators rejected the idea to secure the U.S. dollar supremacy in the international monetary system.

The current monetary system is considered as the cause of professional discussion to a world currency since the collapse of the Bretton Woods system in 1973. It provides the framework for international cash flows, defines the rules for exchange rate regime and relies on institutions such as the IMF, monitoring the system and secure. In the literature, the current monetary system is often described as a "non- system", since few binding rules almost complete freedom in the choice of exchange rate regime exists. In consequence partly strong fluctuations in exchange rates between national currencies may occur. Associated with this are far-reaching, negative consequences for the economic development of many countries and regions. According to various economists thus allowing this " non- system" too little emphasis on the reduction of global imbalances.

Among the most prominent advocates of a world currency include former Federal Reserve Chairman Paul Volcker, and the Nobel laureate economist Robert Mundell. Due to the large concerns of many economists, such as Nobel laureate economist Milton Friedman and Paul Krugman, however, especially the introduction of a global currency in the coming years and decades seems almost impossible due to lack of political support.

• 2.1 Since the conference in Bretton Woods
• 2.2 Since the New Economy

• 3.1 Presentation of the factors
• 3.2 Transfer of factors on a world currency

• 4.1 advantages
• 4.2 Obstacles and problems

Approaches to a global currency

Gold Standard

Since the beginning of the 19th century existed in emerging Western nations increasingly the international gold standard, so that one can speak of him as the first, internationally valid currency system with partial gold backing of paper money. However, already developed during the time of the gold standard economists such as Walter Bagehot, the desire to improve the system, to save useless information and transaction costs incurred in international trade.

Meet after the American economist and Harvard professor Richard N. Cooper in economically unfavorable conditions proposals to strengthen the role of gold in the monetary system regularly to a large audience. The proposals for the re-establishment of the monetary role of gold in this case have a wide range, from which a re- establishment of gold as a reserve asset through to full-blown restoration of a gold standard. The idea behind the proposal of gold as new reserve currency is to limit the growth in the money supply. In the opinion of Cooper this currency reserves, however, offer no monetary discipline in the economies concerned. As an example, he cites the United States, which officially from 1900 1973 their reserves in gold secured until the collapse of the Bretton Woods system, in which most of the time the gold reserve requirements were not binding.

The objectives of the proponents of a growing monetary role of gold are the re-establishment and maintenance of price stability, as it could come by gold - currency reserves to no more inflationary developments in their opinion. After Cooper see some of the proponents thus in the re- establishment of the gold a practical way fixed exchange rates between currencies, especially the major currencies to restore. However, prices remained during the gold standard in the 19th century not stable, but varied with the growth rate of the gold deposit. Rose gold deposits not strong enough, prices were forced to fall, Cooper. Furthermore, the price level was stable only in so far as the terms of trade between gold and other goods remained stable. In conclusion, from his historical analysis sees Richard N. Cooper the gold standard not as a forward-looking approach of a world currency.

Key currencies with potential for a world currency

• United States of America
• Other States with U.S. dollar as legal tender
• Currencies with fixed exchange rate peg to the U.S. dollar
• Currencies with a narrow -band exchange rate to the U.S. dollar
• Members of the European Monetary Union with EUR
• Other states with the euro as legal tender
• Currencies with fixed exchange rate peg to the euro
• Currencies with a narrow -band exchange rate for euros

The U.S. dollar since the end of World War II by far the most important international currency. He has an important role in the functioning of the current international monetary system. The increasing importance of the dollar as the leading and reserve currency and a recognition of a world currency is called dollarization.

Under " dollarization " refers to the introduction and use of the U.S. dollar as a replacement for their own national currency. After Myron Frankman, although it may in this process come to an upswing in the country, leading to stable economic relationships such as the avoidance of currency crises, inflation and tighter integration. However, he sees it as just as likely that deflation, unemployment and political tensions can follow. Particularly developing and emerging countries fought a long time with high inflation and persistent macroeconomic imbalances, selected the use of the dollar as a substitute or as a hotel and commercial unit in addition to their domestic currency. The mid-90s was the worldwide demand for the dollar so strong that 2/3 of neuemissionierten dollars were exported. Some countries " dollarized " officially, for example through the creation of an exchange rate arrangements, such as Argentina from 1992 to 2001, or by elimination of the domestic currency and is completely replaced by the dollar as Ecuador and El Salvador. In addition, most countries are clearly on the dollar use, since they also use it as their national currency in the traditional functions of money. Thus, these countries are " partially dollarized " to be called.

The recently second most important reserve currency, the euro, are also attributed by many economists significant growth potential. To view the data collected by the IMF that the euro as a common currency significantly more official attracting investors collectively referred to as the former national currencies. The clear improvement of 7 ½ percentage points in 1999, compared with the previous currency basket in 1998, illustrates two aspects according to the IMF.

• First, the development is consistent with the theory that at any time can exist more than just an important investment and reserve currency. Linked to this, the importance of the euro increases as the international reserve currency.
• Second, development confirmed the predictions of significant diversification effects.

Approximately 650 million people live in the euro area and in countries whose currencies are closely tied to the euro. In this case, this number already includes the 157 million people in the CFA franc countries of West and Equatorial Africa whose currencies are closely oriented to the euro and backed by the French Treasury. After Martha A. Starr Europe showed itself with the introduction of the euro, that it actually intends and able to meet the challenges of a monetary union is to be assumed. It brings together not only the relatively similar Western European countries, but also the formerly socialist dominated Central and Eastern European countries. This project applies prevailing opinion as a model for a monetary union by various economies and as an example of a broader-based monetary system. John Williamson brings in his 2000 published journal article The role of the IMF: take the proposal some experiences from the euro zone in the reform of the international monetary system, A guide to the reports. As an example, he finds the fiscal Maastricht criteria for Präqualifizierungskriterien of states to a world currency. The Economist also commented in his article One world, one money. 1998 very optimistic about the development of the euro. Should the euro successfully established over a longer period, the idea of ​​a world monetary union will appear more interesting.

Approach of special drawing rights

Starting from the Belgian- American economist Robert Triffin led the IMF at the end of the Bretton Woods system as a new reserve asset, the Special Drawing Right, short SDR, 1969. Thus, for the first time in monetary history was an instrument which created currency reserves on the basis of international agreements. SDR itself is not a currency, but satisfies the property of an arithmetic unit and currently consists of a basket of currencies comprising 44% U.S. dollar, 34% euro and 11% yen and sterling. So far, the SDR is only conditionally accepted as a reserve currency, since it merely represents a claim to foreign exchange. Thus, it accounts for only a small share in the reserve portfolios of central banks. Is supported by the current situation of the allocation procedures. The IMF acceded countries is currently assigned only when the new edition SDRs. Furthermore, central banks and government institutions act only SDRs, private actors are currently excluded.

However, SDR has, in the opinion of various economists the potential to succeed as an artificial currency unit or calculation of the vision John Maynard Keynes '. Thus, in their view, an advantage of the SDR would be the control by a supranational institution such as the IMF. With a new SDR -based monetary system, the individual reserve currency countries would have new possibilities of exchange rate policy for adjustment to economic imbalances. Requirements for these changes would be a realignment of the missions of the IMF and a capital acquisition by transfer of national currency reserves to the IMF. In addition, the trading volume of SDRs would have to be significantly increased. An SDR application in international trade would be possible for financial transactions by establishing a settlement system between the SDR and the different currencies. A disadvantage, however, that the SDR currency basket as subject to constant fluctuations in terms of the course on the currencies of the individual basket participants, including the member countries. The problem would also be the distribution of competence to SRZ growing on a global scale. According to Friedrich August von Hayek's merely a political would develop " multilateralizing " the creation of money, of which not less inflation than would be expected by the U.S. and its U.S. Dollar. Currently, many of the goals and aspirations in the SDR could be mentioned but also simply through a balanced basket of reserve currencies to meet, so the SDR will not win much prevailing opinion in importance.

Positions to a world currency

In the framework of the theory of optimal currency areas economists discuss the pros and cons of merging of currency areas. However, many influential economists such as Paul Krugman and Jeffrey Sachs are the thoughts of a world currency very skeptical. Others, such as Robert Mundell, Robert Barro and at certain times also The Economist will see the global currency as an excellent idea, which minimizes the amount to the fluctuating monetary values ​​, the global economy dismay. The Economist treated explicitly in 1988 the theme of the world currency.

Since the Bretton Woods

John Maynard Keynes advocated already in his 1943 published work, " Proposals for an International Clearing Union ", in German so an International Clearing Union, which should act as a world central bank. This should ensure the stability and integrity of the international payment and currency system and a new monetary unit, ie a world currency to spend. The name of this world currency was for Keynes but secondary, where he particularly the concept of " Bancor " used in his remarks. According to Keynes 's proposal, however, the " Bancor " should not replace national currencies, but serve as a payment instrument in international transactions.

According to the prevailing opinion of the so-called Triffin dilemma played a decisive role in the diagnosis of the problem of the monetary system since the conference of Bretton Woods. Was named the theory after Robert Triffin. He published it in 1959 in his book: Gold and the Dollar Crisis. The Triffin Dilemma says the one that corrects the USA their big trade deficit, would the rest of the world suffer enormous liquidity shortages. On the other hand, the U.S. failed to compensate their deficit, they would not be able to bind longer their dollar currency to gold, which would trigger a global crisis of confidence in the monetary system.

Robert Triffin referred to the existing since the collapse of the Bretton Woods system in 1971 the system of flexible exchange rates and liberalized financial markets as a "non- system". The reasons for this are that poor countries are increasingly oppressed by this system, the gains concentrated in the hands of a few and is characterized by attention to shortcomings of politicians in adjusting exchange rates.

Developed by John Maynard Keynes in the 1930s proposal of introducing a transaction tax to attract speculative financial flows, has been taken up by several economists. So advanced James Tobin proposed this idea in his 1972 uniform global ( steering ) tax on speculative international currency transactions, the so-called Tobin tax. In fact preferred Tobin a world currency with supportive institutions to such a tax. But he recommends the latter as a world currency for him still seems far away.

In order to consider the prospects of a world monetary system, is considered by some economists to connect it useful specific designs with current assumptions about optimal institutional arrangements for monetary policy. This is the process of decision-making for the public to be portable. Such a design published Harvard Professor Richard Cooper in his 1984 article A monetary system for the future. Cooper's vision was decidedly long-term and influential for other economists. He expected no international monetary system over the next 25 years after the publication of the article. However, he suspected that the time will come when the world currency because the need is present in an increasingly global financial market. In his design, he developed a broad-based monetary union, which is at a core of advanced, industrialized nations and thus attracting a growing circle of participating countries. In the center of this monetary system a supranational monetary authority would be responsible for issuing the currency and directing the monetary policy. The currency came to Cooper next to the U.S. dollar also a completely newly in question. The decision-making organ of the monetary authority would consist of representatives of the participating countries, which would be accountable to their governments. According to Cooper, the distribution of votes of the representatives of the new body could be divided according to the size of the GDP of the participating countries. The monetary authority would receive as the core mandates of a world central bank to obtain the makorökonomische stability and to mitigate liquidity problems. However, Cooper also notes that opportunities for errors by banks and governments continue to be available. In his opinion, it would, however, by the adoption of a world currency for a country difficult to solve and export to other countries financial problems by an artificial devaluation of the currency.

Since the New Economy

The New Economy of the late 1990s, various known economists discussed ideas of a movement for a world currency. So Robert Mundell wrote in his 1995 published work, The International Monetary System: The Missing Factor in that the missing ingredient in the current international monetary system is a world currency. As long as such does not exist, according to Mundell's opinion the existing order remains only the "second best solution ".

Robert Barro, American economist and economist, developed in his 1999 published work Let the Dollar Reign From Seattle to Santiago, the idea of ​​a streamlined, dollar -based monetary system in the Western Hemisphere. He argues that the use of a world currency would be the main causes of previous economic crises, such as strong exchange rate fluctuations on the financial markets through currency devaluations eliminate. Are crucial to prevent moral hazards and abuses him for binding regulations on the use of so-called " lender of last resort " functions.

After Arthur Grimes no economic counter-pressure to re- establish national currencies will evolve after a move to a global currency. The reason he describes in the designs of his expert commentary Case for a World Currency: Is an ANZAC Dollar a Logical Step? of 2000. He sees the great advantage of a world currency in the strongly reduced transaction costs and the possibilities with each partner to trade around the world, regardless of his location.

The listed benefits of dollarization see Myron Frankman also the introduction of a world currency. His remarks he published in the technical paper Beyond the Tobin Tax:. Global Democracy and a Global Currency 2002 So it would have to be neither costly exchange rate negotiations nor compromises or more new institutions. A world currency should be in his opinion, the result of a shared commitment and the effort to create a global, democratic federalism. For Frankman the expansion of free trade and free markets domain is also very important global project. He sees the true goal of the abolition of income disparities, and free trade as a means to achieve this goal. An established world currency would reach in his opinion this goal, as it implies a free cross-border trade.

In his journal article The case for a world currency in 2005, Robert Mundell has expanded its 1995 models. However, this article starts with the approach stabilized exchange rates between the U.S. dollar, the euro and the Japanese yen on the basis of gradually a world currency called " Intor " should be developed. From these three reserve currencies, a currency basket with fixed shares would form whose unit is called Mundell " DEY " for dollar - euro - yen. He hopes for a multi- currency union from the Federal Reserve Bank, the Bank of Japan and the European Central Bank, which sets a fixed exchange rate area with a common monetary policy. After successful establishment of the " DEY " could by Mundell a so-called "Council of Ministers of the IMF " for a gradual introduction of a world currency " Intor " vote.

The Economist provides in Article One world, one money the advantages of a world currency in the openness in trade and the free movement of factors of production. Fluctuating exchange rates destabilize the international trade and investment by relative prices away from their fundamental value. Strong exchange rate movements were in the crises of the 1990s, no damper, but accelerator and one of the causes. One solution would be the increasing integration of the countries in world trade to be connected to a fixing of exchange rates, meaning according to The Economist on one single global monetary union.

Paul Volcker, former chairman of the Federal Reserve expressed itself as follows: "A global economy needs a global currency. " ( German: "A global economy needs a global currency. " )

The American professor of economics, Paul Krugman moves away from the idea of ​​a world currency in his 1999 published work mono Money Mania: Why Are not Necessarily Better Fewer currencies. In his opinion, are the aspirations to a currency consolidation, towards a world currency, only an "intellectual fad ," as he considers a variety of healthy currencies of economically advanced.

Milton Friedman also believes the expectations of a world currency as a " monstrosity ". His stance based on his expectations described in the 2001 article One World, One Money? . The control of such a world currency lies only in the hands of a " small group of unelected officials who are drawn in any election for their actions to responsibility."

The U.S. economist Jeffrey Sachs argues in his work published in 2002 Why dollarization is more straitjacket than salvation, the idea that developing countries should retain their own national currency. As a major reason he calls the historical experience of these countries that abandoned their currency as the dollar and thus suffered greater economic damage than benefits.

Factors for a world currency status

The IMF identified five main factors, so-called "facilitating factors" or FF for an international status of a currency. As a world currency must have reached this stage to be recognized as such, the FF are also applicable on it.

Presentation of the factors

International currencies are usually associated with large, competitive economies, particularly those with extensive trade and financial links. Such an economy generates large markets in foreign trade, being equally strong presence in the domestic markets. Although the construction and maintenance of an appropriate information network is connected with high costs, but by the large market for these dominant economy also decrease their transaction costs.

International currencies are also usually associated with open, liquid and sophisticated financial systems. These increase the attractiveness of the currency in at least three ways: First, they provide participants with international markets deep and liquid secondary market for securities. Second, they continue to offer a wide range of ancillary services to the participants in the international markets. Third, a highly developed financial system will also attract foreign businesses. This option makes it easier for capital market participants in an international currency to invest or borrow and convert the proceeds into the domestic currency.

International currencies are also kept as a valuable reserves. Furthermore, an international currency must be considered properly, the future value is stable for goods and services. Confidence in a currency is indirectly also crucial for their function as removable media.

Especially from the historical perspective of this factor for economists is important. After Robert Mundell a currency is worthless if the issuing state collapses. Resulting from political unions Monetary unions can be viewed in the course of history as a stable.

The phenomenon of the external effects of a network is often associated with international currencies, which increase in value, the more effective its worldwide use. The larger the user network, the more attractive the world currency is also for the individual user. The demand-side economies benefit from the increased liquidity of the currency, which results from the growing network that contains more potential counter-offers, which also increases the likelihood of a quick and successful resale. Such a development is self-reinforcing and would lead to a relatively rapid spread of world currency, strengthen them and at the same time weaken competing reserve currencies.

Transfer of the factors on a world currency

Considering the size of the economy, would then have a world currency from one of the major reserve currencies or their combination emerge. So Fred Bergsten says in his 1997 work, The dollar and the euro, the EU, 31 percent of world production and 20 percent of world trade, the excluded intra-European transactions accounts. In return, the United States generate 27 percent of world production and 18 percent of world trade. Based on the dollar and the Euro - currencies and, where appropriate, in conjunction with the Japanese yen and the British pound sterling a world currency could be established. The markets of these economies have sophisticated financial systems with highly advanced information networks. Add to this the political stability, which is regulated in the case of the United States and the European Union constitutionally or contractually among the individual states and has historically proven. Furthermore, a world currency itself would only get their value when the largest possible number of economies or market participants use them. This aspect would be satisfied for a world currency based on the current reserve currencies.

Review the idea of ​​a world currency

Benefits

After IMF Working Paper by Ewe - Ghee Lim the use of a single currency would be much more efficient than the circulation of various currencies. The efficiency gains would be achieved in two ways. On the one conducting transactions would involve a currency by less foreign exchange markets, what the investment costs significantly reduced in information networks. On the other hand, the transaction volume would grow as overall less foreign exchange markets, transaction costs could be reduced further. To explain these benefits are Ronald I. McKinnon in his field post The Euro Threat is Exaggerated 1998 is a good example:

After Myron Frankman a world currency with supportive institutions would be an essential component of global democracy, which could establish the framework for diversity in all parts of the world. The example of the United States shows that a monetary union can develop to the great benefit for those involved. Prerequisite for this would be that it is based not only on centralized monetary authorities, but is also supported by other institutions.

Even countries that are not involved in a supranational currency would already benefit, according to Robert Mundell on the stability of exchange rates, since such area could play an anchor for other national currencies. Furthermore, a world currency would be the epitome of a social contract in which each member country would represent a legal claim could perceive its economic size.

Obstacles and problems

For political reasons, the influential nation states have little incentive to give up their monetary policy influence or to share with other countries. The then escaping seigniorage revenues play a role, as the thus probably strongly increasing monetary weight of emerging and developing countries. As a political controversy over the issue at the moment as little takes place as an economic, a change in the status quo is not expected.

After Arthur Grimes There are two reasons why countries want nowadays accept any world currency. For one 's own country has a long history coined currency. Even more important is the realization that every other country also has a long history embossed national currency. To this day, practically there is no global currency, countries could accept.

After Myron Frankman is the most attractive prospect of a deeper political and economic integration of the conservation and reconstruction of regional diversity and control. The acceptance of a single world currency, however, calls for the abandonment of many national claims, both symbolic and real, so it is not viable in the foreseeable future.

After Gudrun Leichtlein, Employee of Deutsche Bundesbank raises the development of a world currency to big questions. Essential for an establishment would be a solid confidence in the value of that currency. To achieve this trust, it requires a broad international use this world currency. Furthermore, the global liquidity would have controlled and excessive liquidity are excluded. Also an independent world central bank should be created, what enormous political questions applies, as a consensus decision is hard to imagine. The ingrowth of a currency in its role as world currency it looks to be a very lengthy process. First, it requires a growing use this currency in a region to additionally provide their buoyancy in their use. However, single use areas are not isolated from each other, but are interdependent and mutually supportive. Ultimately, market participants would decide on the use of a world currency.

Economists hold instead the formation of regional currency blocs (one dollar block in North and South America and the Pacific Rim, a Euro block in Europe and Africa as well as an Asian currency block ) is more likely.