Question

Do you feel that we have a good system with all different kinds of currency around the world? What do you feel is the biggest hold-up to one international currency used by everyone?

Answer 1

Yes, We do feel that there is good system with all different kinds of currency around the world. Currency are ultimately used for buying goods and services. We do use currency to buy commodities available in the market. If we require same currency all over the world then value of currency should be same all over the world. To be able to value of currency in same figure all over the world then price of commodities should be equal all over the world. For example, say Dollar is a universal currency and every country adopted Dollar as their home currency. Now the price of one commodity basket in country must be equal in another country i.e. Price of one commodity basket must be same in different countries which is not practically possible.

Say, The cost of one kg Sugar is $20 in US and then Cost of 1 Kg sugar in UK must be $20. If there is difference in price of sugar between US and UK then there is solid arbitrage opportunity available in the market. Now practically, Price of 1 Kg sugar cannot be equal in US and UK due to geographical and agricultural conditions. Each and every countries has their own specific advantages such as better favorable environment, better agricultural land in comparison to other countries etc. Petroleum products will be of lower value in gulf countries because they have huge resources of mineral oils. We can't imagine price of Petrol or Diesel to be equal in all countries. So, it is not possible to use one international currency used by everyone. As per purchasing power parity, price of different currency must be equal on covered basis.