A single, global currency, a common money for all nations – would represent the monetary union. Its advocates argue that, by collapsing multiple national currencies into one unit, the world would eliminate exchange-rate volatility, slash transaction costs, and enhance price transparency across borders. In a unified system, consumers and firms could compare prices and allocate capital globally without “currency friction,” and trade would expand since predictable prices spur competition.
The theoretical benefits of a single global currency are rooted in classical monetary economics. The Law of One Price suggests that identical goods should sell for the same price when expressed in a common currency, provided there are no trade frictions. But in the real world, currency differences lead to price divergence. A global currency could remove these distortions. Eliminating exchange rate fluctuations would also cut the cost of doing business internationally. As firms no longer hedge against currency risk, financial management becomes less speculative and more productive.
Transaction costs associated with foreign exchange are not trivial. Currency conversion fees and spreads imposed by banks, credit cards, and intermediaries amount to billions annually. For multinational corporations and small importers alike, these fees reduce margins and increase uncertainty. A global currency would eradicate these costs entirely. Tourism, remittances, cross-border e-commerce – all benefit from direct pricing and settlement.
Price transparency is another significant gain. A global marketplace where prices are listed in the same unit allows clearer comparison and more informed choices. This benefits not just consumers, but also policy makers, who can better assess competitiveness and inflation dynamics.
Monetary policy would, however, face structural changes. National governments would forfeit control over independent monetary levers. Instead, a global monetary authority – akin to a central bank – would manage the currency, set interest rates, and implement rules. This would likely follow models like the European Central Bank but on a broader scale. The challenge lies in aligning policy across countries with different fiscal positions, economic structures, and political goals. This is no small task, and critics cite the eurozone’s struggles as cautionary examples.
Labour market rigidity and lack of fiscal union among eurozone members revealed how monetary unification can create pressure in asymmetric shocks. A similar risk would exist with a global currency, especially in the absence of fiscal transfer mechanisms. Countries facing a local recession could not devalue to restore competitiveness or ease real adjustment. Instead, wage and employment flexibility would be necessary, which is politically and socially difficult.
