Noshrunner said:
Firstly, the transition cost would be ridiculous. Easily running into the billions of dollars. Then there's the age old question, what should the exchange rate be for superceded currencys? I.e. Would some argue that if we chose the dollar as the international currency, many people could see their life savings wiped out, due to perhaps a weak national currency, or even a short term downward trend that meant atm the currency was of less value against the dollar? And, even in a supposedly one currency bloc, the EU, inflation is a problem. Different countries still have different inflation rates, look at the Eastern European Countries vs Germany etc. A worldwide currency would not iron this out at all. In fact, it could make it worse, as these countries cannot change the currency rate to make their currency devaluate. And the biggest problem is the fact that countries are just economically unique. A one size fits all policy cannot fix this. Look at the EU, their ECB has a tough time balancing its interest rates, with low rates antagnozing problems for countries with high inflation rates and vice versa.
Just would not work I think. |
This is why you would phase out the old currencies slowly over time ...
You introduce the new currency and it begins its life (effectively) as a gold-derivative that is traded on foreign exchange markets. Every time the central bank sells a note they take the money they receive from that sale to buy gold to hold in reserve; allowing them to print more notes for sale. Over 20 or 50 years, existing central banks would sell any foreign reserves they had. Eventually, these currency reserves would be large enough that you could create an exhange rate that is a proportionate distribution of the new currency based on people's holdings of the old currency, and the existing central bank could be phased out.
