Tuesday, November 11, 2008

Global currency? I don't think so

Berly Martawardaya offers a solution to the global economic crisis: global currency (The Jakarta Post, 11/11/2008). He calls it radical. I don't think it's radical; it's impossible, at least in our lifetime. He rightly says the road to get there is "long and arduous" but he goes on to argue that "the benefit is too great to ignore". I don't think so. If the benefit is great and exceeds its cost, we should have been there already. Now, even the most established currency union like that of euro has coordination problems. Every year since World War II one economy on average exits currency union (Rose, 2007). Most importantly, if you want a global currency, you need a global central bank. And that to be effective, you would need a global government (Rogoff, 2001). Which is silly. I think Berly knows this. He says "an intermediate step of regional currencies would be a wise path to take". But even that, I have big doubt. Friends at campus may have known by now that I'm always skeptical with the idea of Asian single currency. Not because it is a bad idea, but I don't think it would work. Wait, I think it's a bad idea, too.

1 comment:

Berly said...

Yup, I know that global curreny is not feasible for now.

I took two courses, one in Holland and one in Italy, on European economy where ECB n Euro is a central part.

To work, a regional currency need the symetricity of each smaller region/country to ensure the monetary policy would not help one while hurt the other.

But the Fed used to issued different rate for different region. Because the idea is not feasible now doesnt meant it will not be in the future when the rate of regional/global integration pass the threshold.

any comment on my other proposal? actually the base of the article is a two year old paper that selected for presentation in france.