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Big Question: Could a single global currency ever exist?

The expert: Dr. Joseph Daniels, professor of economics and co-director of the Center for Global and Economic Studies

“Since World War II, the U.S. dollar has been the global currency standard, currently accounting for more than 85 percent of daily foreign exchange transactions. This special position of the dollar, however, has been criticized from time to time: In the 1960s and 1970s it was the French calling for a new global standard, and today it is the leaders of emerging economies such as China, Brazil and Russia. Since seventh century B.C., when the Babylonian shekel was the dominant currency, there tends to be a single currency that nations use to settle debts and producers use to invoice international transactions, all while different domestic currencies co-exist.

“On one hand, there are important economic reasons for a dominant international currency and against a single global currency. A dominant international currency allows policymakers to manage their own domestic currency; it facilitates international trade by making transaction less risky and therefore less costly, and provides a safe haven for individuals who live in economies that are mismanaged by policymakers to maintain their life savings. Indeed, a dominant currency can be replaced by another currency. History shows us that this tends to happen when the dominant-currency nation loses its position as a lead exporter and moves from being a major lender to a major borrower. Though this may sound ominous for the U.S. dollar, currently there is not a viable alternative currency.

“On the other hand, separate currencies with floating exchange rates may provide economic benefits by acting as a type of shock absorber when different countries are affected differently by economic shocks. A current example would be the significant impact of the housing and banking crisis on the United States and relatively minor impact on Canada. There are cases however, where a single currency might be more beneficial: when labor, capital, and goods and services flow freely across borders, nations share a common monetary policy, and have some degree of unified fiscal policy. (Think individual states within the United States and consider the current difficulties within the Euro-countries.) Until all nations are willing to drop barriers to labor migration, free trade in goods and services, forego their monetary policy to some supra-national institution, and harmonize fiscal policy, there will not be a single global currency.”

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