World Currency

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world currency

World currency normally refers to a currency that is transacted internationally, with no set borders, but an alternative definition refers to a hypothetical single global currency or supercurrency, such as the proposed ‘terra’ or the ‘DEY’ (Dollar Euro Yen), produced and supported by a central bank which is used for all transactions around the world, regardless of the nationality of the entities (individuals, corporations, governments, or other organizations) involved in the transaction.

Advocates of a global currency, notably famed economist John Maynard Keynes, have argued that such a currency would not suffer from inflation, which, in extreme cases, has had disastrous effects for economies. In addition, many argue that a single global currency would make conducting international business more efficient and would encourage foreign direct investment.

There are many different variations of the idea, including a possibility that it would be administered by a global central bank that would define its own monetary standard or that it would be on the gold standard. Supporters often point to the euro as an example of a supranational currency successfully implemented by a union of nations with disparate languages, cultures, and economies. Alternatively, digital gold currency and cryptocurrency can be viewed as examples of how global currency can be implemented without achieving national government consensus.

A limited alternative would be a world reserve currency issued by the International Monetary Fund, as an evolution of the existing special drawing rights and used as reserve assets by all national and regional central banks. In 2009, a UN panel of expert economists called for a new global currency reserve scheme to replace the current US dollar-based system. The panel’s report pointed out that the ‘greatly expanded SDR (special drawing rights), with regular or cyclically adjusted emissions calibrated to the size of reserve accumulations, could contribute to global stability, economic strength and global equity.’ In addition to the idea of a single world currency, some evidence suggests the world may evolve multiple global currencies that exchange on a singular market system. The rise of digital global currencies owned by privately held companies or groups such as Ven suggest that multiple global currencies may offer wider formats for trade as they gain strength and wider acceptance.

Opponents of a single world currency argue that it would be unnecessary because the U.S. dollar is providing many of the benefits of a global currency while avoiding some of the costs. If the world does not form an optimum currency area (OCA), then it would be economically inefficient for the world to share one currency. An OCA is a geographical region in which it would maximize economic efficiency to have the entire region share a single currency, based on  criteria such as labor mobility and risk sharing). In the present world, nations are not able to work together closely enough to be able to produce and support a common currency. There has to be a high level of trust between different countries before a true world currency could be created. A world currency might even undermine national sovereignty of smaller states.

Another issue is wealth redistribution. The interest rate set by the central bank indirectly determines the interest rate customers must pay on their bank loans. This interest rate affects the rate of interest among individuals, investments, and countries. Lending to the poor involves more risk than lending to the rich. As a result of the larger differences in wealth in different areas of the world, a central bank’s ability to set interest rate to make the area prosper will be increasingly compromised, since it places wealthiest regions in conflict with the poorest regions in debt. Additionally, there are religious considerations. Usury, the accumulation of interest on loan principal – is prohibited by the texts of some major religions. Some religious adherents who oppose the paying of interest are currently able to use banking facilities in their countries which regulate interest. An example of this is the Islamic banking system, which is characterized by a nation’s central bank setting interest rates for most other transactions.

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