What if the world all used the same currency?

Also: Why have government workers been spared layoffs?
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By John W. Schoen Senior producer msnbc.com msnbc.com updated 4/6/2009 8:00:22 AM ET 2009-04-06T12:00:22
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With the value of the dollar jumping up and down against other countries' currencies, what if the world just agreed to use the same currency? It sounds like a simple idea. But like many simple ideas, it would come with all kinds of unintended consequences. Recently, Chinese leaders argued for the creation of a unified global currency, a concept that has been proposed by a number of academics and political officials in modern economic history. While the idea has certainly not received widespread support, the success of the euro demonstrates that currency unification can work and may even have certain economic benefits. What ramifications might the adoption of a universal currency have on global trade and national economies in general? ² R.Z., New York The Chinese proposal for a single global currency was part of Beijing¶s effort to take a more prominent place among world powers at the recent G20 meeting. And they have legitimate reason to float the idea of replacing the dollar as the ³reserve´ currency ² the medium of exchange used for the majority of financial transactions around the world. As the holder of some $2 trillion in dollar-denominated savings the Chinese government has reason to be concerned about the long-term strength of the dollar. One time-honored method of reducing large government debt is to gradually inflate the currency to reduce the real value of that debt. That would also devalue that big pile of Chinese savings. The dollar¶s role as a reserve currency also gives the United States a dominant role in the global economy. That also means other countries are subject to U.S. fiscal and monetary policies over which they have no control.

Each country sets its own tax and spending policies. With a single. euro countries now face a different ² in some cases more painful ² impact from the whims of global investors.So it¶s no surprise that China would like to see another entity ² it suggests the International Monetary Fund would be a good choice ² issue a single global currency that would be used by all countries in place of the dollar. cracks have begun appearing on the continent as the global recession deepens. investors around the world believe the dollar is the safest place to park their wealth. There would be many advantages to this. they will choose the Japanese car. This makes the Chinese proposal for unified currency somewhat ironic. to make its products more competitive when priced in other currencies. . That¶s why.6 percent a year before the euro to half that pace since. That means that countries that are more productive generally see the value of their currency strengthen. Borrowing costs in heavily indebted countries like Spain. So while they¶ve been freed of the impact of currency fluctuation. countries no longer have the luxury of devaluing their local currency to make their product more competitive. There are other problems with a unified currency ² as countries in the Eurozone are learning. The Euro also suffers from the fragmented political structure that governs the economy it represents. A nation¶s currency serves several purposes. Greece. Though the first 10 years of sharing a single currency went relatively smoothly. weaker currencies. the yuan. Since each member country can issue its own debt. Overall productivity growth slowed in Europe from 1. and American car buyers can buy a higher-end Japanese model for the same price in dollars. smaller countries had to become more competitive with larger. Weaker countries enjoyed higher purchasing power without having to produce more goods and services. unified currency. if the Japanese yen is relatively weak compared to the dollar. one of which is a global proxy for the depth.S. as weaker. But it has about as much chance of happening as the adoption of Esperanto as a common global language. Treasuries are so low. stronger countries. some countries now carry debts larger than their gross domestic product. which has accumulated the largest pile of savings. For all of the problems facing the United States. One of the original goals of the Euro was to raise the overall productivity of the European economy. for the moment. strength and productivity of its economy and the stability of its political system. given that for many years. China artificially suppressed the value of its currency. advertisement | ad info Advertisement | ad info Advertisement | ad info Currencies are also valued based on trade flows. the reverse is true. which gives people who earn wages in that currency more buying power when they buy products priced in other. In fact. Ireland and Portugal are much higher than of Germany. interest rates on dollar-denominated debt like U. the euro is used in 16 different bond markets.

has the government made any cuts? They aren't very efficient. In March. None of those choices is likely to win much support on Election Day.That presents these countries with some painful choices they didn¶t have to deal with back in the days when they could devalue their local currency. according to a 2006 report by the Center for European reform. a single global currency would do little to eliminate the resulting imbalances that result from the different economic policies pursued by those sovereign nations. The more citizens who demand services from their government. government employment has its ups and downs. devalue its debts and create its own currency. Lindstrom. From 1980 to 2008. it has roughly tracked the growth of the nation's overall population. Cutting future borrowing costs means raising productivity ² either through layoffs or wage cuts or both. the population grew by about 39 percent and the government workforce grew by about 35 percent. The government stopped measuring productivity of government workers in 1994. Italy. according to the Bureau of Labor Statistics.000 jobs. Or it could boost productivity. As for the productivity of those workers. however. Or it could leave the euro. Minn.) And as long as the global economy consists of a collection of local economies governed by multiple countries. . a London-based think tank. Those debts increase costs. advertisement | ad info Advertisement | ad info Advertisement | ad info Like the rest of the economy. It can continue to muddle along as the slowest growing economy among euro countries. for example. would make it much more difficult to borrow. forcing tax increases or spending cuts. that¶s a little harder to get at. the more people it takes to provide those services. the sector lost another 5. Doing so. it's hard to see how any independent body would be granted sufficient powers to make a workable global currency ² especially in times of global recession when the most painful choices are required. ² Curt. Unless and until the world had a single government to maintain uniform fiscal and monetary policies. (This is what ultimately began the collapse of the gold standard in the 1930s. Which is more or less what you would expect. Still. government employment began shrinking from a peak in August 2008. With layoffs happening everywhere in an order to cut costs and stay in business. That¶s when productivity throughout the work force ² public and private ² began making great strides due in part to technological developments like the personal computers and the Internet. the latest figures available. faces some stark choices. Yes. chiefly by cutting wages. Other euro countries with high debts face similar downward spirals.

2 percent a year by manufacturing workers during the same period. From 1987 to 1994.com Reprints http://www. output per employee among government workers rose 0. we¶ll include it in a future column. though.Pre-1994. If readers can point us to more recent data on government worker productivity.5 percent a year by "nonfarm business" workers and gains of 2.msnbc. That compares with gains in output of 1. © 2010 msnbc.com/id/30047877/ns/business-answer_desk/# .msn.4 percent a year. government productivity didn¶t measure up very well.

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