Global Policy Forum

David R. Francis

Goodbye, dollar. So long, euro and yen. Hello, dey! Dey? It's a proposed combination of the three currencies, which could eventually form the basis of a global currency.

A worldwide money won't emerge any day soon. Still, it's a longtime dream of some economists, who point out several advantages to simplifying the jumble of nearly 190 currencies. For starters, the world trades about $1.2 trillion worth of currencies a day. If that market disappeared, it would save companies and individuals hundreds of billions of dollars a year in foreign-exchange and hedging costs.

Another benefit: no more national currency crises, which have riled Argentina, Mexico, Thailand, and Russia in recent years. No country would have a balance-of-payments problem or need to maintain reserves of foreign assets, such as currency or bonds, to counter dramatic fluctuations in the market. The end of currency fluctuations would also stabilize international business. Manufacturers on both sides of the Atlantic, for example, would no longer have to adjust to huge changes, such as the slide in the value of the euro from $1.17 initially in 1999 to 83 cents two years ago then back up to about $1.22. The value of stocks and other assets in countries now subject to high currency risks and inflation would also soar hugely as investors became more reassured of values.

Former Federal Reserve Chairman Paul Volcker has said a truly globalized world economy needs a global currency. But world money has drawbacks too. No single nation could adjust its domestic monetary policy to remedy a specific economic situation. So the Fed could no longer lower interest rates to counteract an economic slump. Also, central banks would not be in competition to maintain low-inflation rates for their money. Then there's the question of management. The Federal Reserve is independent of the White House, but is a creature of Congress and thereby not fully independent of the political process. So it "must always look over its shoulder to see how Congress is responding to its policies," says Richard Cooper, a Harvard economist who proposes a common currency for the major industrial democracies. If finding a good governance system for a nation's central bank is hard, finding one for the industrial democracies, or the world, could prove even more difficult, he concedes.

Then there are the human ties. Losing a national currency is "a very emotional thing," says John Marthinsen, an economist at Babson College in Wellesley, Mass. "It's like losing your flag." Still, there are moves to consolidate currencies - of which the euro is only the most obvious example. Eight former French colonies in Africa have long shared a common currency. Since 1981, the Eastern Caribbean Central Bank has provided the EC dollar to about a dozen island nations, including Antigua, Barbuda, Dominica, Montserrat, and St. Lucia.

Next year, the Gulf Cooperation Council plans to launch a common currency for Saudi Arabia, Kuwait, Bahrain, Oman, Qatar, and the United Arab Emirates. Also in 2005, the West African Monetary Zone plans to introduce the eco to Ghana, Gambia, Sierra Leone, Guinea, and Nigeria. Proponents are pushing for more. Last month, Robert Mundell, a Columbia University economist and Nobel laureate, and a small group of economists and officials considered plans for a world currency at his personal conference center in Siena, Italy. It is Mr. Mundell, famed for his supply-side economic theories, who talks of the "dey."

Also last month, the Single Global Currency Association held a conference on a world currency. It attracted only eight speakers and three attendees, says Morrison Bonpasse, who sold his temp agency last year to form the group. His timetable for a world currency: 2024.