A Global Currency should be adopted

The purpose of currency The purpose of currency is to act as a medium of exchange. Under the barter system, if two people wanted to conduct trade, it would require a mutual demand for each other’s goods. This is known as the double coincidence of want. [1] A medium of exchange eliminates the double coincidence of wants by replacing one of the commodities with a medium that serves as a form of trade credit. Currency is a form of trade credit, which acts as a share of the aggregate output. For example, if a shop keeper is paid for his labor by the owner in dollars, he could either save his money or he could exchange it for some of the goods in the shop. If another shop accepts dollars, that shop’s output would also be included in the aggregate output and the shop keeper could choose to exchange his money at the rival store instead. If the other shop did not accept dollars, but rather accepted pounds, the shop keeper would either have to convert his dollars to pounds or refrain from purchasing from that shop. If the shop keeper converts his dollars to pounds, he is trading shares of the local output, for shares of a foreign output, so that he could import from abroad. Because under the barter system there is no standard unit of measure in which prices can be expressed, goods and services are valued against other goods and services. This makes it harder to trade, as a merchant would require knowledge of every exchange rate at the trading post. If there were 100 different commodities at the trading post, the merchant would be required to know 4,950 different exchange rates, as opposed to just 100 prices using a trade medium. [1] Because there are 178 different currencies in the world, there are 15,753 different currency exchange rates. These exchange rates defeat the purpose of a medium of exchange. If a common currency was adopted it would promote trade by eliminating the inconvenience of these fluctuating exchange rates. Transaction Costs A transaction cost is the money lost during an exchange. Whenever there is an exchange there is a transaction cost, so reducing the number of exchange rates reduces transaction costs. Some common transaction costs can include, but are not limited to; a.) Currency conversion fees b.) Cost related to time and research c.) Money lost due to inaccurate conversion ratios (e.g. a ratio of 1:2 instead of 1:2.22222) It is estimated that the cost of all transactions is approximately 0.33%. [2] This may seem like a small amount, but in 2012 alone the US imported $2.334 trillion worth of goods, which equates to $7.702 billion in transaction costs. [3] That was just the US, and it does not include the transaction cost of exports. In 2010 alone there was $6.04 trillion worth of exports worldwide. [4] That means in 2010 there was $20 billion lost in transaction costs. [5] Currency speculation The fluctuations in currency exchange rates deter foreign investments and international trade. When someone invests abroad they must convert their currency to the foreign currency. When the investor sees a return on their investment, the return must be converted from the foreign currency back into the investor’s currency. An otherwise profitable investment can become a liability if the exchange rates are not in the investor’s favor, because of the change in the exchange rate between the initial investment and when the investor saw a return on his investment. Likewise, when a company forms a long term contract with a foreign organization, they risk fluctuations in the exchange rate. These fluctuations benefit one party while acting as a liability to the other party, by shifting the benefits of the contractual agreement. For example, if a British company agreed to supply an American company with X amount of goods for Y amount of dollars, fluctuations in the exchange rate could increase or decrease the cost of X amount of goods by changing the value of Y in pounds. The Law of One Price Assuming a market is perfectly competitive, the law of one price states that once exchange rates are taking into consideration, the price of local goods is the same as the price of foreign goods plus the transportation costs. The law of one price does not take into consideration variations in the product, which will naturally cause a variation in price. The law of one price can be observed in the US, where differences in price among states are determined by transportation costs, or market imperfections (such as taxation). States closer to the manufacturer have lower costs, while states farther away have higher costs. A global currency would deter currency manipulation and promote trade. If a country deflates their currency, they can increase their net exports, and if they inflate their currency they can increase their imports. If there was a global currency, imports and exports would be determined by the quality of the goods and services, and the cost of transporting those goods and services. Instead of manipulating currency in order to gain an edge over competitors, imports and exporters would have to compete with other importers and exporters. Exporters would have to compete with better quality goods at lower prices, and importers would have to compete with better offers. This would increase global prosperity, and eliminate trade manipulation. World Peace Currency is a barrier to trade, and by eliminating trade barrier world peace can be obtained; or at the very least the closest thing we can get to world peace. World Peace can be achieved through free trade, because nations are less likely to attack a trade partner. An exporter’s GDP will suffer if they attack a country that imports their goods, because it will reduce the demand for the exporter’s output. Likewise an importer would be negatively affected if they attack an exporter, because the aggregate output is a function of labor and capital. Imports bring capital into a country, so they can produce output. For example, China imports rubber from Malaysia to manufacture tires, and the US imports tires from China to manufacture cars. If the US went to war with China, all 3 countries would see a reduction in their aggregate output. 1http://wps.aw.com... 2 http://www.singleglobalcurrency.org... 3 http://www.worldsrichestcountries.com... 4 http://www.wto.org...