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I am trying to figure out some clear points as to why there is no global currency. Not a world wide version of the EU, I am only focused on a common name/value for a single monetary unit. I know a slightly similar question has been put on hold so in an attempt to prevent that here I am asking for clear and supported pros and cons of a global currency.

My background is physics and engineering so I am still learning about economics and politics and I am struggling to understand how there is any difference other than a mathematical exchange rate between for example the Canadian dollar and a US dollar.

I have asked a similar question on another SE, it was closed due to off topic but the conclusion I reached it that my question is political then anything else, here it is if you want more context.

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    Economics.SE is probably the best place for this question, not Money.SE or Politics.SE. The political barriers are significant and should be obvious. The more technical barriers that Economics.SE are better suited to address are more interesting and should be more useful to you. I suggest also looking into the challenges that the euro faces. You might find the answers to this question helpful: economics.stackexchange.com/questions/4951/…
    – J Doe
    Mar 31, 2017 at 19:12
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    As a said this is not an area I have a lot of experience with. I am asking on the Politics SE because I have no idea what political barriers there could be.
    – Gareth Shepherd
    Mar 31, 2017 at 19:16
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    There are different countries /close.
    – easymoden00b
    Mar 31, 2017 at 19:28
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    Fair enough but what is the impact of that, can I have some concrete examples?
    – Gareth Shepherd
    Mar 31, 2017 at 19:39
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    I'm voting to close this question as off-topic because Most reasoning that isn't subjective is Economics.SE material
    – user4012
    Mar 31, 2017 at 20:57

4 Answers 4

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There is

Well, in one sense, there is a global currency. International agreements are often denominated in United States Dollars. It is not a mandated global currency but it is often used as a de facto one. The Euro is growing as an alternative.

Advantages of a global currency

Some have suggested a separate global currency that is not based on a single country's currency.

  1. Easier to make international transactions.
  2. Less subject to the vagaries of one country's politics.
  3. The US would have a lower trade deficit.

Disadvantages of a global currency

  1. Harder to get people to transact in your currency.
  2. It would require change.
  3. Countries on the inside of the currency would have a trade deficit in aggregate with countries outside the currency.
  4. It's hard to get currency where it is needed, as currency can be spent anywhere. For example, if I buy olives from Greece, they might turn around and buy Swiss chocolate rather than buy local to Greece. Also a problem with the existing Euro.
  5. Bad policies in one area get exported to other areas.
  6. Who decides how much currency gets printed?
  7. Who decides how to spend the seigniorage (profit from printing currency) benefits?
  8. Countries can't devalue their currencies so as to increase employment.
  9. Countries can't strengthen their currencies so as to reduce prices/inflation.

The Euro

The Euro is an example of a multinational currency. It's been around a while. What can go wrong?

A bunch of investors can look at a country like Greece that was using the euro and see that returns are higher there. Under the old system, there was currency risk and difficulty investing across borders. But the euro blew all that away. So people could invest in Greek government bonds. When Greece couldn't pay them, panic ensued.

The US solution to that is for states to make balanced budgets a requirement. Only the federal government runs a deficit on a regular basis. It's unclear if that would work in Europe, much less globally.

Europe also has mobility. Without that, it's unclear what would happen. Mobility allows people to move from their low employment area to another area where employment is easier. That helps smooth out employment and wages. Without it (or with less), currency fluctuation serves the same purpose. But with a regional (Euro) or global currency, currency fluctuation is no longer available.

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  • Great answer, thank you so much. I figure I've got to learn a whole lot more before I fully understand it all but you have definitely gotten me started.
    – Gareth Shepherd
    Mar 31, 2017 at 22:15
  • Most of the reasons listed are not political in nature. Which makes it clear that this question should be off-topic.
    – Sjoerd
    Apr 1, 2017 at 15:03
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    Advantage 2 and disadvantages 2, 6, and 7 are political. Disadvantages 4, 5, 8, and 9 regard political decisions that are restricted by the economics. The US balanced budget requirements are political. US and EU mobility are political but have economic consequences. And the very concept of a global currency is as much a political issue as an economic one.
    – Brythan
    Apr 1, 2017 at 15:17
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    Why are this disadvantages only for global currencies? Can't you have similar problems with a national currency, within one state? And basically the Euro problem shows that you're still subject to the vagaries of Greece, despite your advantage #2. Whether Greece devalues the Drachme or just outright defaults on Euro bonds, as an investor you lose. With the Euro, investors expected the EU to stop Greece from such shenanigans.
    – MSalters
    Apr 3, 2017 at 14:59
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    The Euro is a very interesting topic. There is a very long and ongoing debate about whether it is a long-term feasible project. Economists have pointed out the inherent problems with the halfway-house fiscal union, and the concept of having a central bank but with the fiscal policy set at an individual nation-state level. Some criticise it as favouring Germany, and some don't think the system will work without either ending the union or with full political integration.
    – Sam
    Dec 3, 2020 at 14:02
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A few.

  1. you put your monetary policy in someone else's hands.
  2. you lose a piece of your sovereignty.
  3. politicians have one fewer thing to be bought with...

I think there is no substantive advantages to justify its existence.

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One barrier against a world currency is how different countries view monetary policy. For example, Islamic countries ban interest outright whereas in western countries, the rate that central banks set is an important tool for monetary policy. Given that there are quite a few islamic countries in the global polity, this constitutes one important barrier against a global currency.

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Having an unique money that rules the entire world is not a dream.

During 300 years, starting from 1500s, Spain controlled the Spanish dollar or piezas de ocho. Between the 18-20th centuries, european countries and others adopted the gold as a stardard currency, but while the gold was the most used, the Sterling Pound was also considered as a global currency.

Today, we have the United States Dollar, which was implemented as standar currency (not legally, the US dollar was introduced as a reserve currency) at Bretton Woods Conference, in 1944. But this was not the first choice in that conference, actually the option UK and their europeans parts wanted to put was the Bancor, a proposal introduced by John Maynard Keynes, which would be a unit of account used to track international flows of assets and liabilities, supervised by a Global Central Bank, today International Monetary Fund. Gold could be exchanged for bancors (the unit of account), but bancors could not be exchanged for gold.

Having a global currency brings us some advantages at the time to make global trade in those days, actually. You don't want to worry all the transactions in different currencies? Using the dollar, that is solved. Problems with some economic policy in certain countries? That is also a problem solved because the dollar doesn't change their monetary policies for no reason and so on.

The disadvantages? Lot of them but the most important part (in the field of economic policy) is the Triffin Dilemma, the conflict of interests between international and local objectives concerning monetary policies.

After the 2008 crisis, the issue about a global currency was on the floor again and with the Zhou Xiaochuan's essay about a global currency, China questioned the role of the dollar as a standard currency. Zhou proposed:

(...) The centralized management of part of the global reserve by a trustworthy international institution with a reasonable return to encourage participation will be more effective in deterring speculation and stabilizing financial markets. The participating countries can also save some reserve for domestic development and economic growth. With its universal membership, its unique mandate of maintaining monetary and financial stability, and as an international “supervisor” on the macroeconomic policies of its member countries, the IMF...

If the text above sounds familiar, the idea of Mr. Zhou was taken from the Bancor's proposal of 1944. But with these propositions, there are two main questions:

  • As a country, are you prepared to deliver your economic sovereign to an international supervisor?
  • Do you trust -as a country- in the IMF (or any other organization/supervisor) and their economic policies?
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