The financial markets of the world have been a built-in market as the development of the globalization. However, the free motion of financing across the several nations above the same period, following financial liberalization, makes the global financial and financial market unstable due to fluctuation of the exchange rates between different global currencies, including the money, euro pound and yen. Hence, a global single money is believed to be a highly effective way of alleviating the fluctuation of financial market, on the other hand increasing benefits and increasing business certainty for business communities, especially finance institutions. However, the issue of a global single money still encounters many obstacles, for case, which country will have the energy to issue it, the freedom of every country's monetary regulations and the damage to the advantages of the countries who concern current global currencies. The essay will look at that why we desire a global single currency, the obstacles that needs to be solved and just why it will not be issued in a near future.
The reason we need a global single money is the enormous benefits it can create. The effect on the global financial market is direct and significant, for occasion, around $400 billion a year in foreign-exchange purchase costs will be removed and currency fluctuations or currency crises will also go away. Furthermore, central banks of every country will no long need to hold large amounts of foreign currencies, specifically for the countries which do not concern global currencies, which can be invested in other domains to spur financial development. By using a global single money, prices worldwide will be named in the same product and can be easily compared. International trade will be as easy just as the same country and it'll be much convenient for global travel, learning aboard, etc. Robert Mundell, a Nobel-winning Columbia College or university economist, says that 'The benefits to each country from a stable money that is also a widespread currency would be substantial. ' (cited in Platt, 2007)He also boasts that, ' if a worldwide single currency is used, there would be a common inflation rate and similar interest, a considerable expansion in trade, productivity and financing integration, which would generate a significant increase in economic growth and well-being'.
Because there is no a global one money nowadays, how it will work can be deduced from two similar samples, the buck in the Bretton Woods system and the euro after 2001. Together with the rebuilt of the countries and quick development of the global current economic climate after the Second World Warfare, the Bretton Woods system was set up by european countries. The Bretton Woods system was a set exchange system in which EUROPEAN countries and Japan preserved set exchange rates from the money and the dollars set to the silver. The United States was at the guts of the Bretton Woods system, participating in the role of world banker, working balance-of-payments deficits, and supplying dollar reserves abroad. In this era from 1947 to 1973 when the Bretton Woods system been around, the dollar did the trick as a global single currency and played a substantial role in stabilizing the global overall economy, rebuilding the entire world financial order and promoting the immediate development of the global current economic climate. However, the Bretton Woods system ended in 1973 mainly for two reasons. Triffin (1960, cited in Fukumoto, 2011) suggests that one reason is the decease of the platinum reserves in america. The money was linked to platinum at the fixed price of the dollars at $35 per ounce of silver and the united states was obliged to maintain the buck value of silver. As the demand of the money dramatically increased due to immediate development of other countries, the foreign-held external dollar liabilities got exceeded the USA yellow metal reserves by 1960. When the united states cannot continue spending gold at $35 an ounce to formal foreign creditors, the united states money depreciated against silver. Darby (1983, cited in Fukumoto, 2011) claims that another reason behind the collapse of the Bretton Woods system was the international transmitting of the inflation occurring in the USA. Beneath the Bretton Woods system, there was an asymmetry between USA and other countries which is these countries were appreciated to peg their currencies to the US dollar and got to maintain dollar parity in the foreign exchange market. Because of this, after the USA boosted inflation in the second option 50 % of the 1960s by expansionary financial and fiscal procedures, the inflation in america spread abroad signing up for the Bretton Woods system and they lost their trust in the USA. Both of these reasons, coupled with other effects, resulted in the collapse of the Bretton Woods system.
Another significant example is the euro. Euro, as the single currency of the European Union (European union), was officially launched on 1 January 1991 in 11 of the then 15 EU member expresses. The Euro system is mainly constituted by three parts: the euro money, the European Central Loan company (ECB) which takes on responsibility for the financial plan of the euro zone and the Steady and Growth Pact which constraints and coordinates the monetary policies of the member nations of the EU economic and economic union (EMU). The issue of the euro made a great sense along the way of European Integration at the beginning years. Utilizing the euro as an individual money in the European countries makes the deals between European countries easier and cheaper due to reduce deal costs. Furthermore, the incidence of the financial crisis generated by exchange fluctuation between European countries also lessens and the financial markets become a whole. However, to a certain extent, the euro is recognized as a failed experiment. It has led to the weaker European economy, such as sovereign debts crises in a number of Europe, such as Greece, high unemployment rate, the serious condition of major Western european banks and the top trade deficits. The reasons may be that the EMU cannot use financial insurance policy as a crisis-fighting tool and the policies created by the ECB have a tendency to be passive as a result of constraint of the Firm and Expansion Pact.
From both of these special samples, the obstacles which is faced when issuing a worldwide single currency are available. The first & most important thing is whatever country will issue it? The buck became a global currency because the USA was the most powerful country in the european countries following the Second World Conflict. While the current world is a multi-level world and there is no an individual hegemony. Maybe the Western european Central Standard bank (ECB) can teach us some lessons, which a global central loan provider who issues this money can be founded by the US and the policies should be produced according to the wish of most countries. The next problem is how to create the value of this currency. Once we can learn from the dollar, the worthiness of this money should be stale such that it can promote the introduction of the global financial meanwhile it cannot be fixed in a real item, such as platinum. A possible solution is that SDRs granted by the IMF can be utilized as the building blocks of the global solitary currency. The 3rd one is one factor which is extremely concerns: the lost of self-reliance in monetary plan, which may be used to adjust the internal overall economy and steer clear of the pass on of the external financial crises. The effect can be clearly found in the euro area, like the debts crises of several Europe. It's the cost the countries should pay to be able to take part in a economic community. There exists another significant problem which must be encountered and is difficult to resolve is the damage to the great things about countries issuing current global currencies. As is known, the dollar and euro all want to be the global solo currency because it can bring enormous benefits to the country or community issuing it, for example, the fantastic seigniorage- income by issuing global currency- it can bring and the control over other countries' market.
To conclude, the problem of a worldwide single currency can bring huge benefits to our world, including the elimination of transfer charge, the promotion to the global current economic climate and the steadiness of financial market segments. However, there are also tremendous obstacles needed to be experienced, including which country will issue it, how to set its value, the challenge of the financial coverage and the damage to several countries or communities. Some obstructions may be resolved by the experience got from earlier monetary systems, while others have no clear solutions yet. So a global single currency won't appear in the near future. However, I think that with the further development of the globalization, especially financial globalization, a global single currency will emerge absolutely as an effective way to adapt to this development.
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