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Along with globalization of trade and finance has come a certain globalization of money. Some countries have adopted monetary unions and currency boards; others increasingly use international currencies in place of national monies. This article explores the idea of a global money-framed here as a voluntary, representative arrangement based on accepted principles for optimal conduct monetary policy. It argues that if the current pace of economic and financial integration continues, a global money may emerge that is better adapted to internationalization of production and exchange-although such a change may be a long time in coming.
(JEL F330, F360, E420)
ABBREVIATIONS
GDP: Gross Domestic Product
IMF: International Monetary Fund
SDR: Special Drawing Right
A global economy needs a global currency.
-Former Fed Chairman Paul Volcker
I. INTRODUCTION
Along with globalization of trade and finance has come a certain globalization of money. For much of the twentieth century, the main monetary paradigm was a national central bank issuing a sovereign currency; as the number of countries increased, so did the number of currencies. A small number of mostly small countries used a foreign currency for domestic currency, as with Panama, which has used the U.S. dollar since 1903. But for the most part, countries had their own currencies, their own monetary policies, and their own central banks.
Yet the monetary landscape has changed importantly in recent years.1 After a long period of economic and political integration, in 1999 12 European countries began implementing a common monetary policy based on a common currency, the euro, which went into circulation in January 2002. Another three EU members opted out to stay out of the monetary union then, but may join at some time. In addition, the 10 countries that joined the EU in 2004 have to adopt the euro eventually, on timetables that vary by country. The European currency has also been important in the transition economies of Central and Eastern Europe: given the uncertainty and high inflation that came along with the transition, strong international currencies were sought as a store of value, to the extent that 40% of newly printed German marks were estimated to be leaving the country at one point, and several governments hard-pegged their currencies to the mark and then euro via...