Would a Single Global Currency Have Helped Cool the Meltdown?
The financial world is looking for ways rebuild people's trust and confidence in markets, and Morrison Bonpasse sees a future for a single global currency. "The movement of vast amounts of money around the world to avoid currency risk is not productive," he told E-Commerce Times columnist Theodore F. di Stefano.
Feb 27, 2009 5:30 AM PT
Recently, I asked the president of the Single Global Currency Association, Morrison Bonpasse, about his take on the current worldwide economic problems.
Here's what Mr. Bonpasse had to say:
Theodore F. di Stefano: To what extent do you attribute today's economic problems to the lack of a single global currency?
Morrison Bonpasse: The global economy depends upon trust, confidence and the expectation that risks are measurable and manageable. In today's multi-currency world, there is significant currency risk, especially for those currencies managed by single nations where national economic goals obscure the need for monetary stability. As the global financial turmoil spread in 2008, Iceland's currency collapsed and required IMF (International Monetary Fund) assistance. Other countries, including Hungary and Poland, also required IMF assistance. For those countries, the common assessment was that belonging to the Eurozone would have avoided the currency risk and the resulting substantial hardship within each nation.
Similarly, if the world had already implemented a single global currency by 2008, there would have been zero currency risk, worldwide. There still could have been housing and stock market bubbles, but there would have been no currency risk, and therefore the current global financial turmoil would have been reduced.
TdS: How do you think having a single global currency would have assisted the resolution of the current world financial turmoil?
MB: As the world struggles to rebuild confidence and trust in markets, the values of currencies fluctuate widely and cause uncertainty and increase currency risk. For example, the value of the UK Pound decreased by 23 percent in relation to the euro over the past year, which is a dramatic shift between two of the world's major reserve currencies. Investors and business people and even travelers need assurance that today's money will be worth the same tomorrow, and a 23 percent change in one year frustrates that need. The movement of vast amounts of money around the world to avoid currency risk is not productive.
With a Single Global Currency there would have been no such fluctuations of values of currencies, as there would be only one currency, by definition.
TdS: What are the advantages of a single global currency?
MB: In addition to eliminating currency risk and currency fluctuations, a single global currency would eliminate the need for foreign exchange reserves, which now total more than (US)$4 trillion in underutilized assets. It would eliminate approximately $400 billion spent annually in foreign exchange transactions. A single global currency would increase the global value of assets by tens of trillions due to the elimination of currency risk, and global inflation would be reduced by the management of inflation by a Global Central Bank, whose primary objective is monetary stability. Even in today's economy, that's "real money," as the late U.S. Senator Everett Dirksen would say.
TdS: What are the disadvantages of a single global currency?
Further, the benefits of a single global currency far exceed those of regional monetary unions because even the currencies of regional monetary unions must fluctuate against the currencies of other monetary unions, and their central banks must maintain costly foreign exchange reserves.
TdS: What approach would you suggest to creating a single global currency?
MB: The success of the euro and other monetary unions has shown the world the benefits of regional monetary unions and the path to a single global currency has become clear. The world will achieve a single global currency, to be managed by a Global Central Bank within a Global Monetary Union by expanding and merging current monetary unions and creating new monetary unions.
The Gulf Cooperation Council's monetary union is planned for 2010, and that will be the world's second largest monetary union. Others are planned for South America, East and South Africa and Asia, and the monetary unions in the Caribbean and West Africa will be expanding. The processes of creation, growth and merger will continue until there is a critical mass or "tipping point" where one monetary union currency emerges as the obvious choice. The joining of the U.S. with one or more monetary unions might be one "tipping point," as might be the merger of the Eurozone with the Gulf Cooperation Council and one or more Asian currencies. After such a tipping point is passed, the remaining currencies will flock to join, just as countries have joined other efforts at worldwide standardization of measurement, computers, telecommunications and air traffic.
TdS: What can be done to accelerate the timetable to implementation of a single global currency?
MB: The Single Global Currency Association is urging economists and government officials globally to research and study the costs and benefits of a single global currency. The claims in this interview and my book, The Single Global Currency: Common Cents for the World, need to be substantiated. The International Monetary Fund should be the most interested in a single global currency since a single global currency will achieve all of the original goals of the IMF. Thanks, Ted. The single global currency will be for the people and for the world.
TdS: Thank you, Morrison. Usually the discussion of currencies is rather academic and hard to understand. Thanks for making it easier for us non-academic people.
Theodore F. di Stefano is a founder and managing partner at Capital Source Partners, which provides a wide range of investment banking services to the small and medium-sized business. He is also a frequent speaker to business groups on financial and corporate governance matters. He can be contacted at Ted@capitalsourcepartners.com.