Explain the concept of different currencies and why there is no singular world wide currency/ what are benefits and downsides of having a world wide currency?
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Currency used to be the physical resource. A cow is a cow wherever you are. Gold is gold. As trade advanced, people started switching to coins as they’re more portable than a cow, and then countries started standardizing their coins to make exchanging money for goods easier. They used to actually weigh coins to determine their worth because the coins themselves were silver, gold, or copper. Then they eventually shifted to having something non-valuable (like paper or nickel) stand in for a specific amount of gold, but the amount it represented varies by whoever was producing the coin. Now it doesn’t even directly represent a specific amount of gold, it’s tied to the country’s economy and its value depends a lot on inflation. That’s why there’s an exchange rate, each country’s currency reflects a different value depending on the country’s economy and how expensive goods sell for in that country.
There have been very few times in history where one country wasn’t at war with another. We’d need world peace to settle on a global currency. Even crypto has multiple different kinds and it’s not linked to any specific country. The EU obviously switched to one currency but it wasn’t easy and it almost didn’t happen because of how much poorer Greece was relevant to the other European countries and the concern that their poverty would tank the Euro’s value. It is not currently possible to do that on a larger scale.
Currency used to be the physical resource. A cow is a cow wherever you are. Gold is gold. As trade advanced, people started switching to coins as they’re more portable than a cow, and then countries started standardizing their coins to make exchanging money for goods easier. They used to actually weigh coins to determine their worth because the coins themselves were silver, gold, or copper. Then they eventually shifted to having something non-valuable (like paper or nickel) stand in for a specific amount of gold, but the amount it represented varies by whoever was producing the coin. Now it doesn’t even directly represent a specific amount of gold, it’s tied to the country’s economy and its value depends a lot on inflation. That’s why there’s an exchange rate, each country’s currency reflects a different value depending on the country’s economy and how expensive goods sell for in that country.
There have been very few times in history where one country wasn’t at war with another. We’d need world peace to settle on a global currency. Even crypto has multiple different kinds and it’s not linked to any specific country. The EU obviously switched to one currency but it wasn’t easy and it almost didn’t happen because of how much poorer Greece was relevant to the other European countries and the concern that their poverty would tank the Euro’s value. It is not currently possible to do that on a larger scale.
The problem with single world currencies is the problem Greece had when it joined the Euro.
Before that, it had the Drachma. Drachmas could only be spent in Greece. That meant that any drachma that left Greece would eventually come back. If someone bought dollars for drachmas, the seller would only agree to that deal if they knew or believed that in the future they would either need to buy something in Greece, or someone else would want to and would therefore want to offer dollars for those drachmas. If Greece isn’t producing things people want, they might need to accept less dollars for those drachmas.
But if there’s a single currency and Euros leave Greece, and Greece isn’t producing things people want, then those Euros are now *gone*. If more go out than come in, then steadily the supply will drain away and never come back. Result: the mess that happened a few years back.
The problem with single world currencies is the problem Greece had when it joined the Euro.
Before that, it had the Drachma. Drachmas could only be spent in Greece. That meant that any drachma that left Greece would eventually come back. If someone bought dollars for drachmas, the seller would only agree to that deal if they knew or believed that in the future they would either need to buy something in Greece, or someone else would want to and would therefore want to offer dollars for those drachmas. If Greece isn’t producing things people want, they might need to accept less dollars for those drachmas.
But if there’s a single currency and Euros leave Greece, and Greece isn’t producing things people want, then those Euros are now *gone*. If more go out than come in, then steadily the supply will drain away and never come back. Result: the mess that happened a few years back.
The problem with single world currencies is the problem Greece had when it joined the Euro.
Before that, it had the Drachma. Drachmas could only be spent in Greece. That meant that any drachma that left Greece would eventually come back. If someone bought dollars for drachmas, the seller would only agree to that deal if they knew or believed that in the future they would either need to buy something in Greece, or someone else would want to and would therefore want to offer dollars for those drachmas. If Greece isn’t producing things people want, they might need to accept less dollars for those drachmas.
But if there’s a single currency and Euros leave Greece, and Greece isn’t producing things people want, then those Euros are now *gone*. If more go out than come in, then steadily the supply will drain away and never come back. Result: the mess that happened a few years back.
Well, we can’t reach an agreement as to not bomb each other at times… I think (not sure but could check) that at any given time in the past centuries there were at least 2 nations at war with each other. Also different political systems ranging from liberal democracies like the West to theocratic totalitarian regimes like Iran. These don’t typically have the same approach to different issues so I don’t think they could agree on a common currency and monetary policy.
Even if you hypothetically get past all that in your project of establishing a world currency…then, who is in charge? who sets interest rates? who decides if it’s favourable to devalue money? Let’s say you make a democratic world bank UN style where each country votes: in this case would a “one country one vote” system be fair? The UK has the same GDP as te entire continent of Africa…would they have an equal say?
Well, we can’t reach an agreement as to not bomb each other at times… I think (not sure but could check) that at any given time in the past centuries there were at least 2 nations at war with each other. Also different political systems ranging from liberal democracies like the West to theocratic totalitarian regimes like Iran. These don’t typically have the same approach to different issues so I don’t think they could agree on a common currency and monetary policy.
Even if you hypothetically get past all that in your project of establishing a world currency…then, who is in charge? who sets interest rates? who decides if it’s favourable to devalue money? Let’s say you make a democratic world bank UN style where each country votes: in this case would a “one country one vote” system be fair? The UK has the same GDP as te entire continent of Africa…would they have an equal say?
Well, we can’t reach an agreement as to not bomb each other at times… I think (not sure but could check) that at any given time in the past centuries there were at least 2 nations at war with each other. Also different political systems ranging from liberal democracies like the West to theocratic totalitarian regimes like Iran. These don’t typically have the same approach to different issues so I don’t think they could agree on a common currency and monetary policy.
Even if you hypothetically get past all that in your project of establishing a world currency…then, who is in charge? who sets interest rates? who decides if it’s favourable to devalue money? Let’s say you make a democratic world bank UN style where each country votes: in this case would a “one country one vote” system be fair? The UK has the same GDP as te entire continent of Africa…would they have an equal say?
You know how every couple months there’s a bunch of stuff on the news about how the Federal Reserve might be changing interest rates? Setting interest rates is the most important single tool that the government has to fine tune the economy and their ability to do so requires the federal reserve to be able to print (and destroy) basically unlimited amounts of US currency.
Having a single world currency would make trade easier, but it would mean putting this very powerful tool in the hands of some kind of international body. There are a bunch of political reasons (both good and bad) why this is unlikely to happen.
You know how every couple months there’s a bunch of stuff on the news about how the Federal Reserve might be changing interest rates? Setting interest rates is the most important single tool that the government has to fine tune the economy and their ability to do so requires the federal reserve to be able to print (and destroy) basically unlimited amounts of US currency.
Having a single world currency would make trade easier, but it would mean putting this very powerful tool in the hands of some kind of international body. There are a bunch of political reasons (both good and bad) why this is unlikely to happen.
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