1.

Introduction
This paper takes you to the imagination of having a single global currency for
worldwide trade and development and its benefits, costs and feasibility. There are
191 member countries of the United Nations with 141 different currencies. We can
see that world is indeed in need of a global currency since European Union
implemented Euro as their common currency.
The quest for a single global currency began in 1944 when John Maynard Keynes,
the developer of Keynesian economies proposed a new global currency clearing
system called the Bancor. With the advent of globalization and considering the
numerous takes of various economists on understanding the word economy we
could conclude that we would prefer a world with fewer uncertainties in terms of
monetary policies and thus it becomes interesting for us to explore the feasibility of
such a single global currency.
Firstly, it analyses the current international monetary system followed by the
analysis of the benefits and also throws light on the negative aspect of a single global
currency system in the world economy. The paper does not focus on the credibility
of this system; it primarily states facts with regards to the positive and negative
impacts and the feasibility of such a system in the present world economy.
2. Origin of the idea
Owing to such disparity, instability and inefficiency, the possibility of a global
monetary system has been a matter of discussion for numerous times. John Stuart
Mills role in the inception of the idea in 1848 of the modern single global currency
is noteworthy. Over the next century numerous international conferences were held
and discussion was centered about mutually accepted coinage and standardizing the
values of currency, gold and silver.
The first exclusive proposal for a global currency came in 1944 Bretton Woods
international monetary conference, where dollar was established at the national
currency and fixed its value to gold at $35.00 per troy ounce. In addition to this the
Bretton conference encouraged the member nations to adhere to regulated
movement of capital funds. In 1998 the Economists published that 30 years from
then prices of goods would no longer be printed in dollar, instead the consumers
both household and commercial would prefer a global currency called Phoenix. In
2001, Mundell, the nobel prize laureate (1999) for his expert work on exchange

rates and common currencies gave a lecture in IMF and renewed the call for G3
monetary union which would form the platform for the implementation of Single
Global Currency.
3. Evolution of the International Monetary System

Bimetallism: Before 1875

Classical Gold Standard: 1875-1914
Interwar Period: 1915-1944
Bretton Woods System: 1945-1972
Current International Monetary System: 1971- Present

Bimetallism: Before 1875

A double standard in the sense that both gold and silver were used as money.
Some countries were on the gold standard, some on the silver standard, some
countries were on both.
Both gold and silver were used as international means of payment and the
exchange rates among currencies were determined by either their gold or
silver contents.
During most of the 1800s the United States was had a bimetallic system of money,
however it was essentially on a gold standard as very little silver was traded.
Gold Standard: 1875-1914
The gold standard was a commitment by participating countries to fix the prices of
their domestic currencies in terms of a specified amount of gold. National money
and other forms of money (bank deposits and notes) were freely converted into gold
at the fixed price. England adopted a de facto gold standard in 1717 after the master
of the mint, Sir Isaac Newton, overvalued the guinea in terms of silver, and formally
adopted the gold standard in 1819. The United States, though formally on a
bimetallic (gold and silver) standard, switched to gold de facto in 1834 and de jure
in 1900 when Congress passed the Gold Standard Act. In 1834, the United States
fixed the price of gold at $20.67 per ounce, where it remained until 1933. Other
major countries joined the gold standard in the 1870s. The period from 1880 to
1914 is known as the classical gold standard. During that time, the majority of
countries adhered (in varying degrees) to gold. It was also a period of
unprecedented economic growth with relatively free trade in goods, labor, and
capital.
The gold standard was a domestic standard regulating the quantity and growth rate
of a countrys money supply. Because new production of gold would add only a
small fraction to the accumulated stock, and because the authorities guaranteed free

convertibility of gold into non-gold money, the gold standard ensured that the
money supply, and hence the price level, would not vary much. But periodic surges
in the worlds gold stock, such as the gold discoveries in Australia and California
around 1850, caused price levels to be very unstable in the short run.
The gold standard was also an international standard determining the value of a
countrys currency in terms of other countries currencies. Because adherents to the
standard maintained a fixed price for gold, rates of exchange between currencies
tied to gold were necessarily fixed. For example, the United States fixed the price of
gold at $20.67 per ounce, and Britain fixed the price at 3 17s. 10 per ounce.
Therefore, the exchange rate between dollars and poundsthe par exchange
ratenecessarily equaled $4.867 per pound.
Although the last vestiges of the gold standard disappeared in 1971, its appeal is still
strong. Those who oppose giving discretionary powers to the central bank are
attracted by the simplicity of its basic rule. Others view it as an effective anchor for
the world price level. Still others look back longingly to the fixity of exchange rates.
Despite its appeal, however, many of the conditions that made the gold standard so
successful vanished in 1914. In particular, the importance that governments attach
to full employment means that they are unlikely to make maintaining the gold
standard link and its corollary, long-run price stability, the primary goal of economic
policy.

Interwar Period (1914-1944)

The years between the world wars have been described as a period of deglobalization, as both international trade and capital flows shrank compared to the
period before World War I. During World War I countries had abandoned the gold
standard and, except for the United States.
The onset of the World Wars saw the end of the gold standard as countries, other
than the U.S., stopped making their currencies convertible and started printing
money to pay for war related expenses.

Bretton Woods System: 1945-1972

The Bretten Woods system enacted in 1946 created a system of fixed exchange
rates that allowed governments to sell their gold to the United States treasury at the
price of $35/ounce. The main hope of creating a new financial system was to
stabilize exchange rates, provide capital for reconstruction from the war and foment
international cooperation.

Each country was responsible for maintaining its exchange rate within 1% of the
adopted par value by buying or selling foreign reserves as necessary. The Bretton
Woods system was a dollar-based gold exchange standard.
"The Bretton Woods system ended on August 15, 1971, when President Richard
Nixon ended trading of gold at the fixed price of $35/ounce. At that point for the
first time in history, formal links between the major world currencies and real
commodities were severed". The gold standard has not been used in any major
economy since that time. By 1973, the world had moved to search for a new
financial system: one that no longer relied on a worldwide system of pegged
exchange rates.
Current International Monetary System: 1971- Present
The current IMS took shape in the years following the Asian crisis (1997-98) and the
advent of the euro (1999). This system can be seen as an evolution from the two
previous systems, the Bretton Woods system of fixed exchange rates and the
subsequent system centered on three major floating currencies (US dollar, Japanese
yen and Deutsche mark)
The world monetary system has evolved since the 20th century, and presently has
settled into a system where the US dollar plays a central role in the world trade and
finance. US dollar is the anchor, where all the major currencies float against the
dollar and each other, while the other not so strong currencies attach themselves to
these currencies or float independently. This is a major topic of discussion
considering the present scenario where Euro is proving to be a potential candidate
for this role. This has attracted numerous opinions of top-notch economists and
analysts. Some believe that dollar will soon retire from the central role in world
trade and finance while others assure that underestimating the dollar is not the best
of idea.
Volatility in exchange rates have increased immensely which may be of secondary
concern for the developed economies but pose a threat as a primary concern to the
developing economies, considering that the latter form one-half of the world output
producers and home 80 % of the worlds population. Due to fluctuations in the
foreign exchange market and the inability of these developing countries to negotiate
debts in their domestic currency led to a situation where in the burden of external
debts is more as compared to domestic output.
The final issue of the present monetary system addresses two contrary dynamics.
Firstly the share of US output has declined considerably from 40 % after World War

II to 22% presently. This would ideally mean the fall in the value of dollar in the
international market however; increased economic integration has led to an
enhancement of the central nature of currencies of large economies with high
credible policies.