The Trading World - Essay Example

Discussion Having a global currency allows the trading world to work with a few if not one, currencies across borders. Financial globalization may be defined as the assimilation of financial markets around the globe into one (Mohan 33). This can be possible so long as uniformity is introduced in the terms and conditions, in the world, for raising international loans. The existence of various currencies with their varying rates of convertibility inhibits uniformity in the terms and conditions, and apart from acting as a barrier to such integration, it also reaps unfair benefits to the developed countries. The only way to eliminate the problem and develop financial globalization is by creating a common worldwide currency (Mohan 39). This paper will discuss why a global economy requires a global currency. The movement of capital and goods across country borders is accompanied by inevitable transaction costs and commissions (Bonpasse 189). Having a single currency minimizes on these costs and improves trade efficiency. Increasing volumes of trade and investments across borders creates a strong partnership between exporters and importers around the globe. Both parties would be beneficiaries of a common currency. Two or more countries trading in the same currency are likely to conduct trade up to three times more than if they were using different currencies (Bonpasse 204). Globalization of currency makes the world an optimal currency area as economic integration makes countries react and adjust in similar ways in their responses to external trends. The closer the trade links countries have, the more related their business cycles are. Therefore, currency convergence may lead to an increased flow of international trade. Multiple currencies also imply uncertainties, because traders are not always quite sure what foreign goods will cost, or what foreign buyers will be willing to pay for their products. At the same time, as globalization grows and volumes of international transactions rises, both independently and in comparison to the world output, the cost of having multiple currencies also goes up (Bonpasse 241). As posed by a research conducted in the United States, most national currencies are a trend of the twentieth century, and international, cross border currencies are the best solution for the future (Hausmann 96). The researcher provides that in the broader perspective, farmers in Africa will be able to get equal pay for their produce as farmers in America, and laborers in Asia will also receive the same pay as their peers around the world. A positive effect of having a global currency is the reduction of the gap between the rich and the poor. There is evidence pointing towards the forces driving the globalization process, in relation to wealthy countries, indicating that they are narrowing the per capita income gap between themselves and the globalizing nations (Aart 103). For instance, India, Bangladesh and China were among the poorest nations in the world a few decades ago, but they have significantly influenced the narrowing of worldwide inequality, thanks to their economic expansion (Aart 104). In an era when international interdependence and integration in trade and economy are on the increase, a standardized and universal system of currency will be among the various complementary measures that will assist in simplifying and facilitating interaction and understanding among the nations (Mohan 76). A single, common currency would serve like a global language, enhancing communications around the world traders. It would eliminate the current difficulties presented by speculation, instability and uncertainty. It would also provide a strong foundation for installing and growing a global economy. It would significantly reduce the cost and risk of doing business internationally. Within the present trading system, more than one trillion dollars are traded every day as investors seek to get best returns with the least risk involvement (Mohan 89). This movement of currency is managed by professionals who must anticipate and guard themselves against unfavorable changes in exchange rates. This always leads to speculation for or against particular currencies. Governments are also in the forefront to intervene and protect their currency's position or to search for trade advantages (Bonpasse 248). The system is essentially unjust because countries that keep their money in reserve currency receive unwarranted economic reimbursement, compared to less the less favored countries with weaker currencies. A global currency has the potential to promote economic justice in the world. It can eliminate the unfair advantage possessed by a few favored countries whose currencies appear stronger or more secure, thus preventing the poor from being hurt by the repercussions of currency fluctuations (Bonpasse 252). In the long run, by putting all nations globally on a level playing ground, having a single currency would do much to counteract the harm that is occasionally stimulated by economic globalization. The ever fluctuating exchange rates between different currencies not only impose difficulties for international trade and investment, but also interfere with long term business planning and national economies (Aart 116). It also bears an impact on inflation and pricing of commodities. Every movement undertaken will have both winners and losers, with the losers incurring economic penalties. If a country decides on a fixed exchange rate, then its monetary policy must be able to defend it. On the other hand, if it opts for a managed float, then it is exposing itself to speculative attacks (Aart 116). Most Central banks can intervene and protect their currency, but the occurrence of a serious currency crisis will easily crush national reserves and call for emergency international assistance that could run into billions of dollars. A single currency would impose a common economic firmness on all countries and compel them to face realities (Aart 120). They may no longer print money at will or live beyond their means. This will have obvious, positive developments. In conclusion, a single currency is one of the elements necessary to promote a more effective and just economic system around the world (Bonpasse 261). If accompanied by measures for integration and harmonization, it would work side by side with the rest of development of other apparatus for large scale decisions that intend to build inter governmental trust and consensus around the world. This, in turn, will provide a platform for the world federal system necessary to achieve world unity and peace (Bonpasse 264). Works Cited Aart, Kraay. Finance and Development. New York: International Monetary Fund, 2011. Print. Bonpasse, Morrison. The Single Global Currency. New York: Routledge, 2006. Print. Hausmann, Ricardo. Rethinking the International Monetary System. Boston: Federal Reserve Bank of Boston, 1999. Print. Mohan, Joshi. International Business. New York: Oxford University Press, 2009. Print. Read More