The success of the euro has fueled interest in a plan for global monetary union that could end currency crises and boost world trade.
For decades there has been a groundswell of opinion developing in support of a single global currency. With the success of the euro, a project that many observers expected to end in embarrassing and costly failure, the pressure to create a global currency is only increasing.
The benefits from a universal currency would be enormous, its proponents say. An estimated $400 billion a year in foreign-exchange transaction costs would be eliminated. There would be no currency fluctuations or currency crises. There would be no need for central banks to hold foreign currency 1 reserves, which hang like a sword of Damocles over the markets as central banks and sovereign wealth funds shift their massive holdings.
With a single global currency, prices worldwide would be denominated in the same unit and could be easily compared. Trade between countries would be as simple as interstate commerce in the United States. Global travel- A ers would not have to worry about changing their money and paying fees for this inconvenience.
A world currency would lead to an enormous increase in the gains from trade and real incomes of all countries, including the US, says Robert Mundell, a Columbia University economist who won the Nobel Prize in Economics in 1999 for his work on optimum currency areas and his analysis of monetary and fiscal policy under different exchange-rate regimes. "The benefits to each country from a stable currency that is also a universal currency would be enormous," Mundell says in a posting on his web page. "If the whole world were dollarized, there would be a common inflation rate and similar interest rates, a considerable increase in trade, productivity and financial integration, all of which would produce a considerable increase in economic growth and well-being," he says.
Whether or not a world currency can be achieved in the near future will depend as much on politics as economics, according to Mundell. To avoid the parochial national connotation of the "dollar," he suggests calling the world unit the "intor," a contraction of the words "international" and "or," French for gold.
"My ideal and equilibrium solution would be a world currency (but not a single world currency) in which each country would produce its own unit that exchanges at par with the world unit," Mundell says. A Group of Three open-market committee designated by the board of the International Monetary Fund would determine how many intors produced each year would be consistent with price stability, he says.
Virtual World Leads the Way
A somewhat similar currency, the Linden dollar, already exists in a 3-D virtual world on the Internet, known as second Life, which has its own economy. In September fashion designer Giorgio Armani opened a clothing shop in second Life. It is a replica of Armani's flagship store in Milan. The designer sent an avatar, a virtual replica of himself, to open the virtual store in the online world. Residents of second Life can use Linden dollars to purchase Armani outfits for their own avatars, or they can get connected to Armani's new online store if they want to buy clothing to wear in real life, for which they will be billed in real money.
In second Life, residents can buy and sell virtual products and services, as well as "real estate," using Linden dollars, which are exchangeable for US dollars and other currencies on market-based currency exchanges. Originally, all "land" comes from San Francisco-based Linden Lab, the owner of the software and the server that make up second Life.
Morrison Bonpasse, president of the Single Global Currency Association, based in Newcasde, Maine, and one of the leading proponents of a universal currency, says he is aware of second Life but has not publicized the Linden dollar for fear people will think the idea of a world currency is a fantasy. …