Free to Choose

I am currently reading the book Free to Choose (this links to a website) by Milton and Rose Friedman. I have found it very interesting. In the second chapter, it talks about different currencies across the world. I guess I'm about as dumb as they come when you start talking about Economics, but what would the big problem be to make a worldwide currency? We could commision a group of people to be in charge much like the US has the treasury, and leave them in charge of the distribution of the money. If we switched we could do it for a certain amount of countries each period. It seems that it could be a good solution to foreign exchange, and it would solve alot of the exchange problems discussed in the second chapter. Maybe I am off my rocker and totally naive to the whole concept of economics, but could someone tell me why it wouldn't work?


Aaliyah said...

One problem I see with a worldwide currency is its governing mechanism. We have other world wide organizations, such as the UN, which are notorious taking a long time to make decisions, which in turn are then hotly debated by the rest of the world. A world wide orgaization that would control our money would have to report to a worldwide government to adjust interest rates, buy and sell bonds, etc. Another problem with a world wide currency is that it would take away the advanatage some countries have in the export and import markets. Those countries such as India that have a cheap, but well educated labor market would suddenly be worth as much as everyone else. They would loose their attractiveness for outsourced labor. In short exchange rates can be an advantage, and is a small price to pay for autonomy in our own currency.

Dr. Tufte said...

-1 on Aaliyah for multiple spelling errors.

I think Aaliyah's criticism should not be taken lightly - the history of multinational organizations is not good.

On the other hand, principles of macroeconomics tells us that most money is created inside the financial system, not by government measures outside of the financial system. So, it seems reasonable that the damage that could be done by a multinational body would be smaller in this arena than in some others.

Having said that, Friedman's point that national currencies are more trouble than they are worth is largely correct.

One legitimate reason for their existence in the past is the debasement of metallic currencies by new mineral discoveries. However, this can be avoided by the use of paper currency, with some sort of tight control of printing.

A tougher nut to crack is plain old ego. Most countries have a currency because their government officials have been told it is something they are supposed to have. Once it is in place, it becomes a source of pride for them.

A further concern is that one of the reasons to have a single currency is to limit the ability of governments to indirectly tax their citizens wealth by devaluing their currency (the technical term for this is seigneurage). The problem is that most governments would be unwilling to give up this ability without a fight.

For the curious, we actually have had some very widespread international monies in the past. The best example is the Maria Theresa thaler. These were silver coins minted in Austria in the 18th century. They were used throughout the Middle East, and into other parts of Asia and Africa until the 1960s. We've all also heard of "spanish" doubloons and pieces of eight - both of which refer to gold coins minted by Spain that were in wide circulation from the 16th to the 19th century. Both of these examples show the willingness of the financial system to adopt a uniform international currency on their own, and should highlight that the big problem with the issue is the conceit of government officials.

mason said...

I don't see how this could be possible. There are still too many countries who strive for a socialized system where the government has full power. Take China for instance, the government is in control of the country by telling the population what is best for them. They have the power, and I would bet that sharing a currency would take that threat of that power away.
Other reasons that I can't see a world wide currency, is that many third world countries are just too far behind. Two years ago I had an oppurtunity to spend two weeks in Ethiopia on a medical expedition. Back then the majority of the people would only bring home 1 to 2 birr a month. 8 birr would be equivalent to 1 American dollar. Our poorest in the states can't even be compared to the poorest there. It is very sad. How could a world wide currency work in a situation like this? It is almost like the Great Depression, but it doesn't ever seem to end in Ethiopia.

Dr. Tufte said...


1) Your point about government control is well-taken. But the type of control in this case is to devalue the currency to devalue privately held wealth.

Dr. Tufte said...



Ethiopia (and other places) aren't "like the great depression". Rather, they are far, far, worse.

This is not exclusively due to bad monetary policy choices - like printing money to indirectly tax away private wealth. But, it can be, and often is.

mason said...

Your right, Ethiopia (and other places) are far far worse than the Great Depression ever was. I was trying to make a comparison of hard times when money is so important for survival.
There are so many countries on different scales, especially compared to the U.S.. Can currency/money be devalued when there is such a wide range of wealth and poor with not alot in between? I just don't see how it could. It goes back to who has power and who doesn't. Could you tell Wal-Mart to stop and let someone else have a chance?

Jackson said...

Not only is the collaboration of choosing a common currency a massive and impossible undertaking it would be a huge step toward socialism.
A major criticism with socialism is that it puts all the power in the hands of big brother and society loses its ability to control their own social welfare. Forcing a single monetary system would only lessen the monetary freedom of every country. Granted, some countries would be better off, but as a whole we'd all be held in check.
Not that this matters anyway, because there is no possible way that the world would be able to combine currency.

carter said...

Dr. Tufte said that a big problem would be countries egos. This is true I think that there is no way that America would let another country control its currency. We have a huge debt and the cost of printing could increase. I don't think that this would really help the government financially or any other way.

carter said...

Dr. Tufte said that a big problem would be countries egos. This is true I think that there is no way that America would let another country control its currency. We have a huge debt and the cost of printing could increase. I don't think that this would really help the government financially or any other way.

Dr. Tufte said...

-2 on Carter: one for a misspelling, and the other for a repeated comment that I already gave credit for.