Will a Single Global Currency Boost Worldwide Business?
Jun 2, 2011 8:00 AM PT
In a recent article for the E-Commerce Times titled "Is the World Headed Toward a Single Global Currency?" I asked Morrison Bonpasse, the president of the Single Global Currency Association, about his thoughts on currency consolidation.
Since then, I've given some thought to how the world's multi-currency financial transactions affect business. I then asked Mr. Bonpasse if he cared to share his views on the effects on business of a single global currency.
Theodore F. di Stefano: Why have businesspeople been slow to support the goal of a single global currency?
Morrison Bonpasse: The global monetary system has been multi-currency since the first businessperson traded a good or service with someone who used a different currency. This occurred after money was first coined. A second coinage appeared, sometime around 600 B.C., and thus we had the birth of currency trading. Now, our global monetary "box" has been multi-currency for so long that it's hard to think "outside the box."
di Stefano: Doesn't business make a lot of money from foreign exchange transactions?
Bonpasse: Yes, some businesses do, such as banks and foreign exchange trading firms. But for most businesses, the multi-currency system is very costly. Some of the costs are open and explicit, such as the foreign exchange trading costs. Every day, the world trades about (US)$4.1 trillion in currencies, and it costs about $400 billion a year to run that trading system. The hidden costs are exemplified by the costs of writing Terms and Conditions for foreign exchange into every long-term international contract, and the need to factor future currency movements into purchasing decisions.
di Stefano: The famous financier George Soros has made billions betting on currency fluctuations. Why would a man who has benefited so much from a multi-currency world want a single global currency?
Bonpasse: George Soros knows that the current multi-currency system is dysfunctional and should be replaced with a single global currency. In the meantime, however, the current system provides legitimate opportunities for speculators, and he believes that it's fair to exploit those opportunities. Also, he generously has given a substantial portion of those billions to organizations seeking to make the world more democratic and humane.
di Stefano: What are other examples of the effects of the multi-currency system on business?
Bonpasse: Publicly traded companies announce their results quarterly. Frequently, you will see a currency caveat. This past April, IBM announced its quarterly revenue as "$24.6 billion, an increase of 5 percent, after adjusting for currency gains." Daimler announced that quarterly earnings for its Mercedes-Benz operations had increased by 60 percent and explained, "The very good product mix and improved pricing as well as positive currency effects also contributed to the strong earning."
On the other hand, currency losses are often used to explain bad corporate results. All these calculations take time and labor. It's really all a waste because currency fluctuations are the result of obsolete and artificial currency pricing.
di Stefano: Why do you say that currency fluctuations are obsolete?
Bonpasse: In a world with a single global currency, managed by a Global Central Bank within a Global Monetary Union, there will be no foreign exchange and no multi-currency fluctuations, just as there are now no such fluctuations between Finland and France or between Maine and Michigan.
di Stefano: What about currency risk?
Bonpasse: Every large international corporation has a risk management team, by whatever name, and one of the goals of that team is to minimize currency risk. This is done by moving money around the world to prevent too much money being located in one currency basket and by hedging, all of which costs money.
Sometimes a complete currency crisis costs billions, such as with Iceland in 2008-2009 and Argentina 1999-2002. If Greece, Ireland and Portugal were not using the euro, their fiscal deficits and commercial bubbles might have caused currency crises in those countries. At the very least they would have caused expensive currency fluctuations.
di Stefano: Why should businesspeople care about moving the world to a single global currency?
Bonpasse: With a Single Global Currency, the costs and risks we discussed will be eliminated. Further, businesses will be able to make better decisions using one monetary standard around the world. If a product sells for 100.00 "SGCs" in one country and 110.00 "SGCs in another, businesses will be able to analyze the difference without having to make the complex and ever-changing allowance for currency fluctuations. That reduced complexity exists now in the eurozone and in the U.S., but businesses in those currency areas still need to make the multi-currency calculations for their international business.
di Stefano: Can businesses encourage the movement to a single global currency?
Bonpasse: As every international business has the same problems with the multi-currency system, they can ask their international business associations to study the benefits and costs of a single global currency. Then, if they agree that the benefits vastly outweigh the costs, as will no doubt be the case, they can urge the IMF, World Bank and the G-20 to put the issue on their agendas.
In the meantime, they can urge their own home countries to move faster with the creation of new monetary unions in East and South Africa, Asia, the Americas and the Middle East, and the expansion of existing monetary unions in West Africa and Europe. Regional monetary unions don't have as many benefits as a global monetary union because the regional monetary unions still exist in a multi-currency world, but they provide more stability for their currencies than do nations with their own national currencies. In the 1990s, European businesspeople were influential in the movement toward the creation of the euro.
di Stefano: Any additional thoughts on the influence of business?
Bonpasse: They can ask their own risk management teams about a single global currency, and become better informed by visiting the website, www.singleglobalcurrency.org, When the people and businesses of the world learn how good a single global currency will be for them, their business and the world, the movement toward that goal will accelerate.
di Stefano: Thanks so much for your time, Morrison. You've certainly given us a lot to think about.