HappySqurriel said:
Noshrunner said:
HappySqurriel said:
There is no problem with a international/global currency, there is a lot of problems with all fiat currencies ...
If you had an international central bank where each dollar represented 1/100th of an ounce of gold, and every dollar in circulation had to be backed by 10% of its value in gold held in reserves, it wouldn’t matter how many countries were involved in this currency union the value of the currency would remain sound. Without rampant inflation governments would be (more or less) forced to be fiscally sound, saving money and sound investments would be rewarded rather than credit driven spending and speculation, and a healthy economy would emerge. |
There are a lot of problems.
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 Then there's the age old question, what should the exchange rate be for superceded currencys?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.
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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.
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It still would mean huge transitional costs... In fact, doing it slowly may make the problem worse as people wonder when and how the currency will start. And a "proportionate distribution" does not answer the question on exchange rates. I think the most important problem which you have not addressed is the fact that the gold standard limits the flexibility and range of actions that central banks can take to improve a nation's economy in fundamental ways. (For example, in a fixed exchange rate regime, central banks have less ability to maximize employment, stimulate growth and manage price stability.) The business cycle would also be ridiculously extreme, i.e. the bank cannot help a country be lowering interest rates, so some countries will do very well, others terribly.
An while you say that the paper money has to be backed by 10% its value in gold, what happens if there is a tremendous bank run? You still have the age old question of there not being enough gold to go around!
