A single currency system for the world

By: Submissions

In 2019 migrants sent more than $720 billion in remittances worldwide. The average cost of sending remittances hovered close to 6%. The total cost of remittances exceeds $43 billion annually. Much of this expense is incurred toward mandatory currency conversions. Unifying the world with one common monetary unit is certainly a worthy cause. In addition to remittances it would greatly streamline trade, migration, and diplomacy. There have been several efforts in this direction. Let’s take a quick account of the world’s progress toward this noble goal.

The case of the Euro

One of the most successful examples of monetary unification is the Eurozone. 19 developed nations, each with a sizable economy, made a deliberate currency transition. The rewards of this progressive move are self-evident. Each Euro member state enjoys favorable trading relations with all the others. Their citizens are able to move and work freely in a vast employment market. The costs of remittances they send are close to zero. The Euro has become one of the most important and strongest currencies in the world. It is the second largest traded currency after the USD. Eurozone nations support each other during crises. It is difficult to find a stronger argument than the Euro, for moving toward one global currency.

Currency pegging

Pegging is the act of fixing the value of one currency to another’s. There was a time when most of the world’s currencies were pegged to gold. The ‘gold standard’ served to control inflation, as well as fluctuations caused by runaway speculation. The gold standard may be history, but pegging is certainly not. Despite being members of monetary unions some countries continue to use their indigenous currencies. They do so because they don’t want to make a currency transition, or simply because they don’t qualify for it yet. The currencies of Bulgaria, Denmark, and nearly 20 other counties are pegged to the Euro. Another 30 currencies are directly or indirectly anchored to the USD. Further, nearly 10 micro countries employ the USD as the currency of everyday use, because they don’t have any of their own. Pegging gives currencies relative immunity from exchange rate fluctuations. It also brings some of the benefits of being part of monetary unions.

Challenges to unification

With so many good reasons to unify under a single global currency it seems counterintuitive that it has not been done yet. One challenge is contradictory monetary policies. National currencies are controlled by central banks, which in turn are influenced by government policies. Developing nations often have different economic objectives than developed counties. The rate of interest on long term deposits in Bangladesh for example, is different from that in Spain. The two countries’ strategies for stimulating foreign investments are also very different. Unless all nations unify their vastly different economic objectives, it doesn’t make sense for them to be part of the same monetary union. Moreover, many world regions are riddled with conflict. They don’t have stable governments. Bringing them into a global monetary union would simply not make economic sense for the other member nations.

A feasible solution

The context of uniting under one common currency is to address the high cost of cross-border remittances. Although a desirable goal, global currency unification is currently unviable. However, there are other ways in which remittance costs can be reduced.

Part of the reason why the costs of currency conversion are high is old systems with many middlemen. In some remote parts of the world, banks enjoy near monopolistic presence. They charge exorbitant money transfer fees, sometimes as high as 12%. Better infrastructure and internet connectivity can help remedy this situation. Mobile banking is changing the face of international money transfers in unprecedented ways.

Another promising fintech innovation is blockchain. The widespread use of this technology has the potential to bring remittance costs down to less than 1%. With better regulation the adoption of cryptocurrencies can widen explosively. The global monetary unit which unifies the world at some future point may well be a digital currency.

About the author:

Hemant G is a contributing writer at Sparkwebs LLC, a Digital and Content Marketing Agency. When he’s not writing, he loves to travel, scuba dive, and watch documentaries.

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