Conceptualizing A Single Global Currency For The Future

As globalization proceeds, diluting political boundaries across the globe leading to a single integrated economy, and as the internet and global social networks further convert the globe into a single social union, a single global currency increasingly becomes a necessity. As the crypto-currencies begin to gain popularity among the global citizens of the world, the block-chain technology may aid the acceptance of global currency!
Conceptualizing a Single Global Currency for the Future
Source - Wikimedia Commons (https://commons.wikimedia.org/wiki/File%3AGlobal_Bitcoin.png)

The world is fast turning into a single economic unit. The political boundaries are no more an obstruction to trade and business, and it would be fairly reasonable to say that the world has now got converted into an integrated economy. With these developments, there is also an increasing need felt for a single global currency.

While it is true that the US dollar is popular enough around the world to make the global businesses work, it is difficult to say that the foreign exchange risks and currency wars are fully a thing of the past. As Euro area comes out

of its economic problems and as China gains further muscle, there is every reason that none of the existing currencies may be able to serve as the real global currency.

Gold in Past, Can it be Crypto-currencies in the Future?

Not long ago, gold used to be the standard currency for all business and transactions. Other precious metals like silver and copper also had their value recognized internationally. But, once gold was recognized a store of value, these other metals were at best a second string, supporting the gold standard and serving for coinage. In fact, gold has informally or formally been the global currency till very recently, when the link between the dollar and the gold was finally broken, due to expanding economy and relative shortage of gold. The reason that led to dropping of gold from currency remains true even today, and prevents any such scarce natural resource as serving currency in the fast expanding global economy.

If gold was the standard in the past, there is another new option emerging on the horizon. Whether crypto-currencies can give us that elusive single global currency that everyone wants to be there is one of those million dollar questions that the whole world is struggling with right now, and the answer to which can be provided only by time in due course.

Till then, at least, we can try to find out what we need from the single global currency, and whether the block-chain technology that underlies the crypto-currencies fulfils those prerequisites.

Should it be a Fiat Currency?

The last time when the world really had a single global currency, it was gold, and not a fiat currency consisting of paper. Remembering this simple fact may allow us to prepare for the single global currency in a much more effective manner.

Within the boundaries of a country, the government that controls the financial and monetary systems is accountable to the people for ensuring the value of the monetary unit. This allows the government to issue a fiat currency, and it is the backing of the government that maintains the credibility of that currency and makes it a reliable and acceptable medium. Notably, even in the financial and monetary sphere, the government itself is one of the biggest stakeholders, with stability of currency often linked with the stability of the government. That is what makes fiat currencies issues by Government backed Central banks work.

It means that a fiat currency can succeed as a global currency only if it either backed by the Government of a large economy, which cannot fail, or is backed by several Governments. An example of each of these two possibilities is already available in contemporary world. The first is the US dollar, which is the closest to a global currency that we can possibly have. The second is the SDR (Special Drawing Rights) issued by IMF on the basis of a basket of currencies. Neither of them is what we are looking in the single global currency.

Thus, it is highly unlikely that any fiat currency backed by any Government will be able to work as the single global currency, on its own.

Currency backed by Assets: Stocks, Gold, Land or Taxing Rights?

If we must look for a

currency backed by identifiable assets, it is essential to look for assets that can work. The easiest of options perhaps would be financial assets. Between equity and debt, equity would have the advantage of expanding in proportion with economy, while debt offers greater stability. Yet, anyone with basic knowledge of asset pricing will know that the link of their price with expectations creates too big a risk for any currency.

Among other assets, gold is as stable as one can get, but the supply would fail us, as would also happen with most other precious metals. A better option could be land, which is scarce, but that may not be so much a problem as its vulnerability to expectation based pricing cycles.

What about a biggest asset of all – taxing rights that makes governments survive around the world. As ridiculous as it may seem, it is probably the only asset that could make a global currency work. I know, one can seek answers to an endless list of questions on how this can work, and it would suffice by noting that those specifics can be worked later, but broadly it would work just as it works in case of Governments with a taxing right. In a way it is like Governments coming together to back a global currency with their infallible taxing rights.

So, what is the Proposal?

The details above tell us that a global currency can possibly be envisaged, which must be based on actual assets, and the best way to hedge the volatility in their expectation based pricing might be to connect them with the global currency, so that when the asset prices rise, the value of currency also rises. This can then be backed by the Governments with their taxing rights, and a commitment to use those rights to back-up the global currency in the same way they use their taxing rights to back-up their local currencies.

Where does the Block-chain Technology Fit in?

Block chain technology has a great advantage of decentralizing the accounting process of generation of units and their dispersal. In other words, it can work in preventing any single participant from taking the advantage of seigniorage. When more currency is printed, its benefits will be shared by all stakeholders. It will also ensure that everyone is equally in control over it.

Hurdles in Evolution of Global Currency

The greatest hurdle in case of any global currency, as in case of any local currency, is to develop sufficient confidence in it. People will use a currency only when have confidence in it. An important component of this challenge is also the authority which will manage it. Of course, this is where block-chain technology becomes so handy. So we can have any number of currency auditors working round the clock, around the globe, analysing and examining the global currency ledger, and certifying that the supply of the global currency is backed up by both actual assets as well as the taxing rights of participating governments.

Can it Work?

If crypto-currencies developed by a few individuals can work, in spite of little by way of formal valuations or back-up by Governments, then a global currency backed up with actual assets, even if their price be volatile, and further backed up by taxing rights of governments can surely work.

At least, we can start working from here!



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