The currency of a country is as individual and unique a symbol of its economy as its national flag, which marks its independence and sovereignty. On account of the fact that different countries have their own geopolitical, religious and demographic background, the contours and nuances of their economy are likely to vary from one another, depending upon the needs, requirements, priorities and preferences of the government and people of those countries.
For instance, a landlocked country with a sea nowhere around may not be in need of a navy, at least not as big and powerful as that of nations surrounded by seas. A small navy may still be needed by a small country, as in the case of Switzerland, to perform tasks in its lakes and rivers. On the other hand, a country like China, which has hegemonic ambitions, has no pretensions about investing heavily in its defense outlay.
The Euro Model and Dollarization
One cannot duck the question of the desirability or feasibility of having an ideal world economy where all global transactions are managed by a supranational currency in terms of expediency and transparency of the transactions rather than through a maze of several national currencies. Notwithstanding their peculiarities, the economies of nations are irrefutably interlinked and interdependent. Hence, this proposition of a world currency is worth considering and implementing. The European Union, for example, has a single common currency (Euro), which is as strong a contender as the other hard currencies that go into the making of a reserve currency adopted by the Bretton Woods Institutions.
In fact, only 19 out of the total 28 member-states of EU have adopted the Euro although most of the other member-states, which chose to remain out of the Eurozone and have been using their own national currencies, are obliged to adopt the Euro at some point of time in future according to a timetable. Quite a few Central European and East European countries, the transition economies which were in flux, went for the hard pegging of their national economies to Euro.
There were some other countries like Ecuador and El Salvador, which dollarized their economies by taking their national currencies out of circulation and replacing them with the dollar. But the more widely prevalent practice has been the acceptance of the US Dollar by countries for usage in addition to their national currencies for financial transactions.
We are Asia, No Euro Model Please
It is noteworthy that unlike the European Union, other regional groupings like BRIC, ASEAN or SAARC have not been able to come up with a program of economic integration among the member countries or a common currency on the lines of Euro. This could be on account of varied reasons and factors such as overlapping of political interests among the constituent units, the absence of a common economic agenda or a simple lack of will to coalesce the national economies for the common good of the grouping.
The religious and political slant of Pakistan in selectively addressing the phenomenon of terrorism (in keeping with its position on the issue to align with its contention of “good terrorists” and “bad terrorists”) confounds the issue too much for anybody’s comfort. In such a biased and vitiated atmosphere, it would be too tall an order for regional groupings to consider the integration of their national economies and consolidate the system.
Consequently, a common currency which can make the trade and financial transactions among member-countries of the regional groupings smooth and easy, remains a veritable chimera.
Keynes for Supranational Currency
The idea of a world currency was thought of and presented at an international forum as early as 1944. At an international conference held that year in New Hampshire, legendary economist John Maynard Keynes, who headed the British delegation came up with the idea and even named the currency ‘Bancor’.
The proposal envisaged the setting up of an ‘International Clearing Union’ or a Central Bank of all central banks to ensure the stability and integrity of the international payments system. The envisaged Central Bank would issue a new monetary unit, Bancor. If it had come through, the proposal would have likely helped alleviate the problems faced by the trade deficit countries. The emergence of the US Dollar as the currency for international trade and financial transactions meant that the national currencies of smaller economies had to either float against the Dollar or attach themselves to other stable currencies like Euro or float on their own.
Long Wait for a World Currency
China has set out on the course to shift the world currency order from being unipolar or bipolar to multipolar. In the prevailing circumstances, the prospect of the emergence of a single world currency for the smooth conduct of international trade and financial affairs appears feasible only in the long run and not in the near future. This will remain so until the major international trading partners and stakeholders in global financial transactions come together to give Keynes’ proposal a push, which is not an immediate priority in any country’s scheme of things.
Until the time a single world currency makes an appearance on the horizon of the international economy, SDR (special drawing rights) will have to do its best to serve the purpose of integrating the global economy, involving production and exchange. In any case, the world economy deserves a single robust and dynamic global currency. But how long it will take to become a reality is anyone’s guess.
(The writer is a Chartered Accountant, author and blogger. This is a personal blog and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)