Question

In: Finance

Given the success and possible failure of the euro, wouldn’t it be easier for everyone, both...

Given the success and possible failure of the euro, wouldn’t it be easier for everyone, both individuals and corporations, if there were but one world currency? Do you think that such a transition is likely in your lifetime? How much potential for this is in the bitcoin?

Solutions

Expert Solution

One currency for the world though seems easy and intuitive, is not a solution. It definitely would have created more predictability and easier understanding with no confusion related to different currencies and foreign exchange transactions but this is not a good enough cause for a world currency.

We have to understand that every country is different. Their requirements are different. The people living in there face different circumstances. Inflation is not similar everywhere in the world. A single currency would mean a single monetary policy. But some countries may require expansionary monetary policy and some the opposite. The interest rates prevailing in different countries is different. The living standards vary. Financial autonomy of a country will be lost in such a case. Liquidity requirements vary across regions.

I think only bitcoin has such a potential in the future. Even today it is being used across countries. However, the key point is that it won't replace existing currencies. They both will operate. The bitcoin usage has increased in recent years and many countries have legalised it as well. The volatility of bitcoin is too high. But risky investors do trade in it and accept it. It is one more form of payment for many. It won't replace the currency common people use across nations.


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