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Monetary Unions: Are We On Our Way?

By Theodore F. di Stefano
Jun 2, 2006 7:00 AM PT

Most of us have a subtle, almost subconscious, awareness that the dollar is vulnerable to a currency crisis. Why? Because we realize that our US$4.8 trillion national debt is growing, due to our yearly deficits that have been running in the hundreds of billions.

Monetary Unions: Are We On Our Way?

What has kept our dollar strong so far is the confidence that China and Japan have shown in it by each purchasing over $800 billion in dollar-denominated assets, like U.S Treasuries, government-backed mortgages, etc.

Additionally, the fact that OPEC currently sets the value of a barrel of oil in dollars certainly helps the hegemony of the dollar. But, will foreign countries keep backing the dollar, given so much political volatility in the world today? And, is there a way by which we can avoid a world currency crisis?

One Solution

In his book, Three Billion Capitalists, author Clyde Prestowitz presents a rather intriguing solution. He feels that if Canada, the U.S., and Mexico have one currency union and, believe it or not, Japan joins this union, it would go a long way toward giving our currency a broader base and some insurance against the bad effects of a currency crisis.


Listen to Ted di Stefano (8:16 minutes)

For example, today, if our currency really took a big hit and its value dropped substantially, Japan would be hard pressed because of the billions of assets that it holds which are dollar-denominated. But, if Japan were part of a monetary union that included the dollar, its national treasury would not be devastated by a sudden decline in the dollar.

Actually, it might even benefit because a lower dollar, assuming that Japan had the dollar as its currency, would mean that Japanese goods would be cheaper on world markets. So, Japan wouldn't have to worry about some sudden, steep dollar devaluation.

That's one person's -- author Clyde Prestowitz -- answer to this possible dilemma. Let's look at another viewpoint.

Another Solution

There is another approach that is also intriguing. It's described in a book by Morrison Bonpasse entitled The Single Global Currency - Common Cents for the World, and is available from Amazon.com and directly from the Single Global Currency Association, a non-profit organization dedicated to promoting one world currency by 2024, the 80th anniversary of the famous Bretton Woods conference.

First a disclaimer: I am on the Advisory Board of this international association and will describe its goals without either advocating or disclaiming them. Now back to Morrison Bonpasse's book:

Mr. Bonpasse explains how e-commerce has really made the time ripe for a single global currency, noting that a global currency union is more feasible now "... because the technology of computers and communications has enabled the faster distribution of information to a vastly larger audience than ever before ... and ... the lack of such technology was a major reason why a global currency was not created at Bretton Woods in 1944 ..."

Bonpasse also says something in his book that is rather revelatory: Today "... money is far less important as a medium of exchange, as the most important medium now used is the digit in the form of an electron, in a cable or wire, or in the form of a radio or other electromagnetic wave ..."

Before I met Bonpasse and before I became a member of the international advisory board of the Single Global Currency Association, I stated in my article entitled, Are We Headed Toward One World Currency? that, "E-banking is another factor that lends itself to some sort of currency amalgamation."

The two solutions above from Prestowitz and Bonpasse show how we could avert a currency crisis, if one should ever come. Because currency fluctuations affect us all, whether we know it or not, it's fun to at least ponder the solutions.

Interview With Bonpasse

In an interview with Morrison Bonpasse, I asked him whether he thought his goal for a single global currency by the year 2024 was too idealistic and quixotic. His answer was:

    "Clyde Prestowitz and the Single Global Currency Association are on the same page to the extent that we advocate the creation and expansion of regional and international monetary unions. For the Association, however, such unions are interim steps toward the Global Monetary Union, which would eliminate all currency crises, eliminate the need for costly foreign exchange reserves, eliminate the concern about balance of payments and eliminate currency risk, which would lead to a vast multi-trillion dollar increase in the value of worldwide assets. In addition, the world would save approximately $400 billion annually in avoided foreign exchange transaction costs."

I then asked Mr. Bonpasse if such projections were realistic. His answer was "Indeed yes!"

He then said:

    "We need only build upon what we already know about the monetary unions in Europe, the Eastern Caribbean, Brunei/Singapore, Africa, and the upcoming monetary union among six Arabian Gulf countries. In some ways it would be easier than the development of the European Monetary Union among 12, soon-to-be 22, countries because the Europeans were not sure in 1999 that their plan would work. Now we know that large monetary unions work, and it's not too soon to begin planning for a Global Monetary Union for most, if not all, of the 191 countries of the world."

Unfortunately, I wasn't able to interview Prestowitz to get his take on all of this. If I am able to talk with him in the future, I'll tell you his thoughts.

The bottom line to all of this is that the United States has an enormous advantage in world markets -- including currency markets -- because of our transparent, stable, democratic government, as well as our long history of innovation coupled with our current technological prowess. Currency consolidation might very well help the United States as well as the world in general. In the meantime, our dollar is still the world's dominant currency.

Good luck!


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.


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