This came up in conversation between my mom and I talking about Euros and how cool that is to me (Canadian). I then wondered why we can’t just have that everywhere and all she could say was “it wouldn’t work, what about less profitable countries” and I said “they’d just make/have less?” She did not like that answer and I really wanna know the real reason on why that wouldn’t work bc in my mind since we made up money why can’t we just make up how new money works???
Please explain like a teacher explaining why a kid can’t share 3 m&ms with 28 people
In: Economics
1. Firstly, it’d require all countries (and their politicians/leaders/kings) to agree to one currency. Then the question arises: what currency will they use? Why should the Chinese use USD? Why should North Korea think all this is nothing but an American plot? Why shouldn’t Islamic countries say that Christian currency doesn’t adhere to Islamic values? You get the point.
2. How will a country convert to the common currency? Will you base it on prevailing exchange rate? If so, countries that are poor now, but growing fast will suffer. If it’s based on purchase power parity, large populous countries like India and China will suffer. Basically, nobody will agree to a meaningful conversation rate (because it’s complicated)
3. Trade between countries today affects the relative exchange rates between their currencies. Moving to a common currency will significantly hit export oriented countries like China, India and USA. So they won’t agree to a common currency.
4. Money as a behavior modifier: Powerful countries like USA use their dollar value to impose sanctions on misbehaving countries (like Russia right now). Using a common currency removes this incredibly powerful lever, or makes it vastly complex.
5. There’s no value to a common currency. Whatever you can do with a common currency, you can already do with individual currencies.
Europe was an incredible rare case where you had group of countries that were all small, politically stable, financially stable and rich (through slave trade and colonization, but let’s not go there now). They also have common political values and common enemies. They’ve been cooperating on mutual defense for hundreds of years (individual countries, although not collectively). They’ve been cooperating on mutual defense recently as NATO for the entire continent. So merging the currency was relatively simpler.
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