eli5: Why can’t there be just one currency in the whole world?
In: Economics
1. History. It just developed that way.
2. trust. Imagine telling your very old grandma that we will now all be using the New Zealand dollar. People would have a hard time taking that currency seriously.
3. Gold is kinda that. Gold can be traded pretty much anywhere in the world.
Because there isn’t enough uniformity of economic development or performance throughout the world to allow it without negative consequences. Proper operation of the common European currency requires all the countries involved to run their economies in more or less the same way, with limits set on how far they can deviate from the norm. For example, you can’t set widely different interest rates to simulate industry or control inflation. To do so would mean wealth flowing either in or out of the country as people moved investments to get the best return.
It mostly won’t work because there are different countries in the world and each country reserves the right to manage their population, organize their politics, and adopt their own societal values. A single currency would take away a lot of this capability from each country’s government. Therefore, no country would easily give up this power without some kind of guaranteed behavior by the currency issuing body. With so many countries, it would be nearly impossible to cater to each and every need and want of each country – as the needs and wants change over time and due to circumstances (eg if an agricultural country had a big drought, it might need the flexibility of their currency exchange to mitigate the problems in the short term).
This is slightly beyond ELI5, but you can research what happened to Greece when it had problems but was tied to using the Euro.
Initially it would work fine, local prices would adjust to match the value of the new currency. Where you get problems is if a country runs into economic hardship, it can no longer devalue its currency to try and boost exports. Additionally, if the global economy gets into trouble, rich and powerful nations may demand changes to the currency that will help them, but hurt smaller poorer countries
It would stop countries from messing around with their own economy. Say you’re the government and you want to print a bunch of money for your coronavirus relief program – well, you can’t do that unless it’s your own currency.
Like how the states in the US had to end their coronavirus lockdown before the virus was actually eliminated, because they ran out of money to pay for the unemployment and the federal government wouldn’t give them more. If they had their own currencies they wouldn’t have that problem.
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