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Could The Whole World Use Just One Currency?

Jun 10, 2021
Today's

world

is home to more than 190 countries using 180 currencies to trade, invest and collect taxes, not to mention emerging promises like cryptocurrencies and ancient reserves like gold and silver. The global economy is complex at best. Many times and the foreign exchange or forex market is

just

looking to add an extra layer of confusion to this complexity. The

currency

is supposed to be the legal tender that facilitates commerce for all, so this begs the question:

could

the

world

adopt a single universal

currency

? I like such an obvious solution that would eliminate frustrations at all levels of the global industry, from someone desperately trying to exchange yen for euros at the airport to international companies managing their operations abroad.
could the whole world use just one currency
It's not

just

about convenience, it's about eliminating burdens. of transactions has a very real impact on the economy, humanity has a vault financial system, from barter to gold coins and fiat currency to today, where we conduct the majority of our transactions completely digitally and every step This evolutionary process generates profits. and spending money has become easier vastly improving the quality of life a single world currency surely sounds like the next logical step in creating a truly frictionless globalized market but of course there are questions that need to be answered: what are the disadvantages of a single currency? will be implemented and the perks really make it worth it this episode of economics explained was made possible by our fans on patreon if you want to get early access to these videos before they are uploaded to YouTube as well as participate in exclusive Q&As. sessions, please consider supporting our channel on patreon.com slash economics explained now Universal currencies are not necessarily something entirely new For hundreds of years gold was almost universally accepted as a standard medium of exchange in the modern world, the European Union has adopted the euro for different degrees of success, so perhaps the best way to approach the viability of a global currency is to really explore these other currencies, do what economists do best and use Europe as a guinea pig.
could the whole world use just one currency

More Interesting Facts About,

could the whole world use just one currency...

Media of exchange have been around for a long time, we have discovered. Examples of everything from seashells to wooden sticks used to facilitate exchange Basic societies that have a universally accepted medium of exchange make trade much easier than the alternative which was bartering, bartering or Exchanging item for item meant that people ran into a lot of problems, for example there was a goat farmer who was looking to make his monthly shopping trip, he would need to find people who would sell the items he wants and those people would also have to want to exchange those items for goats, even then it is difficult to exchange a goat for a loaf of bread because that is not fair trade, but also the goat farmer does not need 30 loaves of bread, so what do they do?
could the whole world use just one currency
They divide the goat by 30. It just doesn't work. The other important issue that is often overlooked is that, for example, this goat farmer works. particularly difficult and is very successful it is difficult to store wealth in goats, they die and it is difficult to maintain it the difficulty involved in trading and the lack of incentives to generate genuine, storable wealth meant that economies were really limited to small, communal and self-sufficient villages These small Communal villages were great, they were the foundation of modern society, but they did very little to increase the quality of life of the citizens who lived in them.
could the whole world use just one currency
People more or less had to do everything themselves. There was no time to specialize and become an engineer or. a scientist because every waking hour was necessary only to facilitate what was essential. It has been said before and it will be said again that financial innovation has been as important as technical innovation throughout history because it is actually very difficult to have one without the other. All the problems with trading through a barter system are called frictions by economists, by definition a friction is any difficulty incurred in making a transaction if someone becomes frustrated because a credit card terminal does not work at their food outlet. fast and you can't buy your hamburger because they forgot your cash, which is transactional friction, of course, the goat farmer was probably facing slightly more significant friction, now most people who watch an economics video don't They need the shortcomings of a barter system explained so meticulously. but the bottom line here is that there are frictions in all types of exchange: gold alleviated many of these problems, then there was cash back in gold and then there was fiat currency and today we have our electronic financial system, but just like the goat farmer does not want. trade with the neighboring village because of how difficult it was, people are reluctant to trade internationally because it adds a significant layer of complexity, this in turn prevents countries from trading and instead prefer to be more self-sufficient, just like the self-sufficient villagers who are completely autonomous. -Enough countries are fine, but just like in villages, not specializing reduces the potential for austerity for the entire global economy.
Nowhere was this more evident than in Europe, which is a concentrated area of ​​highly developed economies, all with strong independent industries before 1999, if these countries want to collaborate on trade agreements, establish supply chains or even share talented people , it would be very difficult for them to do so. The risks of dealing in currencies are very important for a company if Germany were to order 10,000 car engines from Italy and they would need to decide on a currency to exchange since Italy is making the sale and Germany is making the purchase, it would most likely be done in Italian lira, they

could

agree that 10,000 engines will be produced for 1 million lira, sign some contracts and then start building the engines and let's say for simplicity that the exchange rate was 1 Italian lira for one German mark two months later and the engines are assembled, the Italian factory will be ready to liquidate the contract, but there is a problem now the German mark is only worth half a lira, a massive bank failure in Germany, if this were to happen and this kind of thing were to happen, then the German car manufacturer would end up having to pay double what it had originally planned for its engine supply.
Currency risk is something that internationally companies must deal with all the time and they tend to do so by basically purchasing insurance on Forex prices using derivatives. This is not a problem for large corporations, but for many small and medium-sized businesses it is simply not worth the cost or headaches, even if it meant getting slightly worse motors they preferred to get them from Germany to avoid these problems completely. The euro got rid of this, now the Germans could put Italian engines in French cars and assembling them in Spain was almost as simple as doing business in a single This not only made industrial specialization possible but also made it easier to work abroad.
Today, a staggering 4% of Europeans live and work in a country other than their country of origin. This is great because it means that companies that offer competitive positions can tap into a larger talent pool that would otherwise have been available to them. Better workers for the job means more productivity, which means more production, which means more goods and services to improve the quality of life for everyone, so it sounds like a win-win situation for everyone, minus foreign exchange. Friction means that countries can come together to do business more efficiently but of course there are major concerns, the first of which is that of monetary control.
The European debt crisis is a major current problem facing a select group of European Union nations caused by irresponsible lending to governments, companies and individuals, countries like Greece are still feeling the impacts of a global financial crisis that occurred 12 years ago. years. This is bad news for all the other nations in the European Union who were not so irresponsible since they all share the same currency. all chained in the international financial markets if Germany wanted to borrow money to finance new infrastructure projects most investors would have no problem reaching a deal Germany is in fact one of the few countries in the world that still has a credit rating triple the problem is that the euro is not as stable as Germany is, potential investors would not be as sure that the currency they lend the money in will be worth anything once it is repaid, this means Germany has to borrow in another currency such as the United States. dollars, which is a bad deal for them or they have to offer investors a higher interest rate to compensate them for the risk, which again is also a very bad deal through no fault of their own.
Germany has been dragged down by a poorly performing member of its team. Strangely enough, the news is not better for Greece either. Typically, if a country is struggling, its currency will drop in value, meaning its exports become artificially cheaper and it becomes more competitive to visit as a tourist. The benefits of a free floating currency tend to self-stabilize a country that is struggling but of course Greece was tied to the euro so this did not happen, Greek holidays were still as expensive as ever and the nation's exports were being crushed by German exports, we have explored European debt. crisis in much more detail when we explore the economy of Greece, specifically it has these events related to the currency, although it is better to think of it like this, think of Greece as someone who just lost their job, this is never a good time, but if They are frugal and started looking for a new job as soon as possible they would probably recover the problem is that their roommate Germany still has a great job and insists on ordering food to party and doesn't really like the idea of ​​selling the TV To To make ends meet, Greece was in a sense forced to maintain a lifestyle that was never sustainable for them simply because they shared that apartment with Germany or they shared that currency with Germany.
Now the security features of the currency exchange are excellent, but one could easily argue. that the benefits of the euro in the European Union have greatly outweighed the burdens and if this is the case, then why not extend this idea of ​​a universal currency to the entire world? We have seen that the benefits and burdens are manageable in the long run, but perhaps the most important question is who would control it. In most countries, the national currency is controlled by a central bank and the federal government. These two entities control the creation. of money and fixing the cash ray in Europe the euro is controlled by the European Central Bank which consults with the central banks of the member countries to do the same and there are some countries in the world that do not actually control their own currency in all countries, like El Salvador and Zimbabwe, simply use us. dollars for national and international trade because it is easier and more stable than printing and managing your own currency.
The same goes for countries like Montenegro and Kosovo, which use the euro even though they are not actually part of the European Union. These countries give up a lot of control to do this to begin with, it is hypothetically possible that their country could run out of money completely with no way to replace it, it also means that their banks cannot operate under the standard fractional reserve system that most use. from other banks, which will severely restrict access. to credit in these countries, if a single world currency were introduced and controlled by a completely independent global central bank, this would be a major concern for all countries, if they allowed all banks in all countries to create money through debt, then there would be nothing to do. prevent a country from printing literally trillions of these global dollars, if they were to restrict this practice completely and many companies would not be able to access capital and growth would be severely affected, these types of restrictions would also usher in a new era of I can't say that countries would desperately try to maintain this universal currency as a reserve of power similar to how gold was accumulated before the widespread introduction of fiat currencies.
I can't say that a country can achieve wealth and prosperity by accumulating gold or in this case a hypothetical world reserve currency by exporting more than it exports, this type of mentality would mean that countries would be incentivized to heavily restrict importsbecause that means money is sent abroad to pay for those imports, restricting trade is literally the opposite of what this universal currency was trying to achieve, so this would be a catastrophic failure if national banks were allowed to create credit as they can today in most countries and this would need to have serious controls, where would these controls come from? well hypothetically of the global central bank, but who would be in charge of this bank?
Even if it were totally neutral in theory, it would still have some kind of leadership structure if the president of this global bank was an American. Would there be concerns from others? nations with opposing interests, the answer is almost inevitably yes. Europe can get away with a centralized currency because all participating nations are strong allies. If countries were not aligned or even at war with each other, there would simply be no fair way to manage this. Nations with global currencies realize this and, while they would undoubtedly be advantages, they would not outweigh the benefits of National Freedom that they would be giving up in a world with hostilities between nations, this system will never be adopted and if history tells us He has taught it.
Anything is that there will always be hostilities, we would be remiss if we didn't mention cryptocurrencies because lord knows in the comments section many cryptocurrencies are based on the idea that they will introduce a new medium of exchange that is completely decentralized from any banking institution, these virtual currencies They show great potential as money of the future. Now, just in case, let's bypass the problems that many of these coins have for more details on this. Go and watch our video on the economics of Bitcoin, but there is another problem with this solution that goes beyond the technical limitation of these coins, if everything worked perfectly, these coins would have a hard limit on the supply of Bitcoin, e.g.
You will never have more than 21 million coins. What exists makes the currencies very similar to gold in that both have limited supply intrinsic value and can be used as a store of wealth. If adoption of such a currency became widespread, financial institutions would simply do what they did with gold and use it as a reserve asset, issuing IOUs and managing credit on cryptocurrency reserves that they don't actually have. Some may argue that this will still be better than the fully fiat system we have today; It probably won't change radically. There's nothing major about banking, but it will introduce an extra layer of complexity that we've been trying to avoid all along.
This is always a topic that people are passionate about, so tell us how you think such a monetary system would actually work and we'll let you know. will present the best answer in the next video we make about cryptocurrencies. Many times, when economists play with hypothetical ideas like a universal world currency, they will conclude that it is possible, but not likely, that a single world currency will actually provide many benefits. Currency would have its advantages and if managed responsibly these advantages could easily offset the costs, but this is assuming that something with so much power and influence could be managed responsibly;
Meanwhile, no country in the world is going to give up increasing the sovereign power it gives them to manage their own currency just in the hope that it will make online shopping a little easier, airports a little less stressful, and business a little more fluid. Hey guys, I hope you enjoyed the last video, if so please consider it. Liking and subscribing to this video is made possible by our sponsors on Patreon. If you want to give your opinion on what country or topic we explore next, please consider supporting the channel like these amazing people did. Thanks guys, bye.

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