Why does it take so long to implement a single currency?

[Yazman]

I've noticed this; it took decades before they actually implemented the Euro and the plans for an "afro" currency, a single unified currency across all of africa, are projected to be implemented fully by 2028.

Now given these are recently adopted plans - why the fuck would it take 20 years to implement?

[piet11111]

because of national interests.

look at germany its one of the strongest european economy's and currently its government is pissed off that many country's in the euro-zone are resorting to bail-outs that undermine the value of the euro instead of "fiscal-responsibility"
they claim that germany is paying the price for their mistakes.

with the euro these objections are mostly worked out (but resurfacing with the current crisis) and this took decades to get to this point so if anything the move to an "afro" currency is in my eyes moving rather fast.

[Yazman]

Ah ok so there isn't actually a whole lot that would prevent a quick changeover, like say in 5 years? Its just policy and national interest of constituent countries that slows it down?

[ComradeOm]

Ah ok so there isn't actually a whole lot that would prevent a quick changeover, like say in 5 years? Its just policy and national interest of constituent countries that slows it down?That and practical issues. Changing a currency is a major logistical challenge that is going to have profound economic consequences. Especially in the case of the Euro where you have to have international consensus - IIRC design and minting alone took roughly four and three years respectively. Unsurprising given the need to accommodate 15 national designs and produce hundreds of millions of euro worth of cash

A national currency change for a relatively small country could be completed in two or three years if in a hurry. IIRC Latvia did their currency change, following the collapse of the USSR, in roughly that timeframe

[Economist]

In addition to the fiscal costs of implementing the production and distribution of a new currency, the major obstacle to policy makers is the notion that two countries with differential economic climates are difficult to be compatible without cost.

Take two countries, one has high inflation due to some factor such as a lack of confidence in the existing currency due to excessive money printing and high interest rates set to combat any further increases in inflation. The other country has low inflation and low interest rates.

If these two countries wished to make a monetary union then after setting their exchange rates to some fixed level, the differential inflation rates would soon lead to divergence in the value of the nominal currencies again. High inflation in one country would lead to an increase in the nominal money supply and so devalue the currency unless serious attempts to lower inflation through the use of sharply high interest rates are enacted.

Monetary Union is a difficult process for many countries and can be made very costly by differential inflation rates, interest rates, national debt etc that can undermine the attempts for nations to maintain exchange rate parity.

Any questions and i will try to be online soon to answer. Thanks for reading.

Economist

[cyu]

That only describes one way to implement a single currency, however. There are plenty of other ways.

For example, both countries could keep their own currencies as is, and merely establish a new currency to use - simply allowing existing trading between the old currencies and new currency to determine relative values.

Here's a more concrete example: Country A uses dollars. Country B uses pesos. Some random people in country A and B (whether government supported or not) decide they'd like to use something else as currency - let's say it's shares in an index fund that tries to match the S&P 500.

So instead of taking dollars or pesos to the store, these people simply start using "S&P"s in their trade. They might sell products priced in "S&P"s or offer services priced in "S&P"s - there might also be exchanges where you could trade your dollars & pesos for "S&P"s - and these exchange rates could vary from day to day or week to week.

Assuming the new currency is "better" than the old, then one would expect the old currencies would eventually lose all their value as people switch to the new one. If the new one isn't better, then of course the old ones wouldn't disappear.

(As an aside, since I'm an anarcho-syndicalist, I aim for an economy where stocks are worthless, since employees have full control of their companies, and not shareholders, so obviously currency based on the S&P 500 would be worthless as well. So instead what would I use as currency? I would back it with a basket of goods like those used to calculate the consumer price index.)

[Economist]

The main problem with creating a new currency without having any backing in terms of convertibility to a peg currency such as Euro to Deutchmark, would be that a new currency that is forged by market demands can be speculated heavily creating a bubble. This would defeat the object of creating a new currency and would also become a kind of liquid asset that would only serve those who have the finance to invest.

[cyu]

a new currency that is forged by market demands can be speculated heavily creating a bubble
Isn't this a property of all currencies?



would only serve those who have the finance to invest


Ah yes, but that's why we call for the overthrow of capitalism, isn't it? Excerpt from Demand is not measured in units of people, it is measured in units of money (http://everything2.com/node/1940667)

In order to have a market economy that serves everyone, rather than the wealthy few, spending power must be relatively equal. But can that be achieved through non-violence?

If wealth is concentrated in stocks, then employees should assume democratic control over their companies, thus rendering stocks worthless.

If wealth is concentrated in the hoarding of commodities, then people who will actually use those commodities should just take them from the storage areas where they are just being held for speculation.

If wealth is concentrated in paper money or gold, then people should just stop accepting that paper money or gold as legal tender, and start using something else as legal tender.

All these acts are non-violent. However, you may be attacked while carrying out these activities, in which case fighting back would only be self-defense.

[Economist]

I dont think spending power can ever be made equal. Those with spending power would flee abroad before they see their property confiscated. Even if they did allow redistribution there are inefficiencies because many workers have no experience in handling capital to make it more productive.

This is not to say that workers are worse than the landed classes at using capital. Those without wealth are often in a position in firms where they know what is best to increase productivity but have no resources to do so. This potential could make a redistribution of capital a greater and more efficient policy than redistribution of income.

As we know from history, redistribution of income, as idealistic as it is, has too many opponents because there are arguments of whether workers have truly earned the figure they receive. More importantly, redistribution distorts the incentive to work and requires heavy government intervention and monitoring to ensure that people earn their wage.

A redistribution of capital would shock the upper classes but could be more efficient than a redistribution of income. In effect it would make everyone shareholders in the national interest and would enable everyone to have a say in what they want buy investing or abstaining from investing in the ideas that they beleive in.

However, as prefferable as this system would be, it would need some regulation. Citizens would have to be required by law to hold a minimum level of value in shares. This would prevent the redistribution of capital being seen as a free shot of income that could be sold, thus preventing a huge bear market and financial crisis. It would enable all citizens to accrue interest on existing stock increasing the standard of living.

This regulation on minimum shares would also act as a government policy tool in conjunction with monetary and fiscal policy. If the government wanted to increase or decrease the savings rate with regard to a particular stage in the economic cycle and to avoid high inflation or low growth, the state could increase or decrease the minimum stock value as a legal requirement. This could cause an injection or leakage of consumption which could affect GDP/ Income/ Standard of living.

The tool would also have the novel power to directly influence the savings rate. By affecting the savings rate, the state could affect the cost of borrowing, easing the position of those on lower short term incomes. This could also influence the cost of investment for the banking sector which would have the effect of guiding investment of capital stock in the future.

If the savings rate were higher then interest rates would fall making it easier to borrow (provided that borrowers can pay back), and investment in infrastructure, new businesses ideas, and technology would increase.

Of course, not only would consumers have to obey a law for minimum stock value, but firms would also have to become limited liability stock companies. No private individual would then be able to accrue huge levels of wealth without some of the benefits of capital passing on to citizens via dividens.

This is a bit of an idea that sounds like it supports capitalism but I think it is practical and would have many implications that would increase everyones stakehold in the state and would improve living standards for many.

However, as I said at first, it is getting the capital from the wealthy that would prove difficult, if not impossible. Also, getting all firms to become stock companies would cause many businessmen to flee abroad. If this happened then I am unsure as to what state the economy would be in before rebuilding a new capital redistribution programme.

Any thoughts?

[Lynx]

A redistribution of capital would shock the upper classes but could be more efficient than a redistribution of income. In effect it would make everyone shareholders in the national interest and would enable everyone to have a say in what they want buy investing or abstaining from investing in the ideas that they beleive in.

However, as prefferable as this system would be, it would need some regulation. Citizens would have to be required by law to hold a minimum level of value in shares. This would prevent the redistribution of capital being seen as a free shot of income that could be sold, thus preventing a huge bear market and financial crisis. It would enable all citizens to accrue interest on existing stock increasing the standard of living.
How would you determine what minimum level is appropriate?
To what extent could citizens rely on their share of the national interest as a source of income?
Does this system eliminate wage labour?
Could it be made reliable enough to eliminate wage labour?

[cyu]

Those with spending power would flee abroad before they see their property confiscated.


You don't really understand economics do you? OK, I'm going to use the word "cash" instead of "capital" - since traditional definitions of capital include cash, raw materials, land, machines, etc. Only the "cash" part I submit isn't real wealth. By "cash" - I mean dollars, gold, currency, any medium of exchange.

Cash only has value as long as other people are willing to trade stuff for it. You don't use the cash itself for anything - you only use it as a substitute for other things. For example, you don't build a house out of cash - you have to first trade the cash for building materials. You don't eat cash, you have to first trade the cash for food. Thus the value of the cash isn't intrinsic - rather, it's social. It is only good if other people are willing to trade stuff for it. If everybody in the world disappeared and all you had was a lot of cash, it would be useless. If everybody in the world disappeared and instead of cash, you had food, equipment, a home, raw materials, etc, none of that is useless. If everybody disappeared and you had both cash, food, equipment, etc - everything but the cash would be useful to you. Thus the value of cash is only social value.

So let's say all the capitalists (ie. "entrepreneurs" as some call them) fled the country with their cash. What has your country really lost? All your country's real productive ability remains (which Adam Smith refers to as the Wealth of Nations). Your country can continue to produce stuff and trade the output of their production with other nations, if they want to. What else can they do? If each country simply decides to stop accepting the cash they used to use, and issue new cash for their trade, then it basically renders those who hold a lot of the old cash completely broke.

So you see, there really isn't much to fear about capital flight.


Citizens would have to be required by law to hold a minimum level of value in shares.

Voters don't "buy shares" of America before they are allowed to vote in American elections. The same would be true of democratic companies - there is no longer a concept of a "share" in the company. Employees simply vote based on the fact that they are an employee of the company.

[Economist]

"Cash" as such is only a fiat good agreed, but by capital flight, I mean that investors would switch from holding domestic currency and capital stock in favour of foreign stock and currency. This means that the domestic currency will be less valued and so depreciation will occur which may suit some economies but those such as the UK would be crippled by increasing costs of imported fuel.

The other worry of a flight of capital would be the switch from domestic to foreign investment which in real terms is a drain of domestic capital to foreign investment. Printing more money would not solve the problem, it would be inflationary and would not increase domestic investment. The government would in this case have to buy bonds using taxpayers money (obtained mostly from the masses) in order to pay for the redistribution of capital goods to the masses. In this case there is no net gain. The government in a sense would have to borrow from foreign investors in order to buy its own nation's assets. Not good. It would have to be managed with extreme care.

[cyu]

I mean that investors would switch from holding domestic currency and capital stock in favour of foreign stock and currency

You do realize that domestic currency / stock is just as worthless as foreign currency / stock, don't you? None of it is actual, tangible means of production - like raw materials, machines, etc. If the actual producers in a country stop accepting their own domestic currency as legal tender, they can just as easily stop accepting foreign currency as legal tender. Fiat money is just fiat money, no matter where it comes from, isn't it?



Printing more money would not solve the problem, it would be inflationary


Why do you assume I'm a supporter of fiat money? When I say "issue new money to replace the old" I'm not saying the new money is fiat money.

Say at the end of a season, a farmer finds that he has harvested 500 bushels of grain (or maybe a group of oil workers find that they have 500 barrels of oil). Then the farmer issues one paper note for each bushel (or the oil workers issue one paper note for each barrel), and then takes that note to spend in the local economy.

As long as the other members of the community know they can redeem the paper note for a bushel of wheat or barrel of oil at any time, then the paper note has value, and can be used as currency. When someone finally redeems the paper note for the grain / oil, then the note is destroyed.

If you feel paper backed only by barrels of oil or bushels of grain is not stable enough, then it's not hard to back it with a more diversified basket of goods. It would be similar to investing in various index funds - some baskets of goods may try to mimic the consumer price index - other baskets may be more focused on the energy sector or the construction materials sector.